Purchase Solution

Plain vanilla, two-year interest rate swap

Not what you're looking for?

Ask Custom Question

What would be the swap fixed rate (SFR) for a plain vanilla, two-year interest rate swap, payments every six months beginning 07/01/0X, with the following assumptions/data:
Swap initiation - January 1, 200X
FRA1,0=2.221%; FRA1,1=2.258%; FRA1,2=2.322%; FRA1,3=2.388%;FRA1,4=2.520%;FRA1,5=2.632%
(Read the notation, FRA1,0 as "six-month forward rate from 01/01/0X,FRA1,1 as "six-month forward rate, six months from 01/01/0X, FRA1,2 as "six-month forward rate, one-year from 01/01/0X, etc.)
LIBOR to remain at 2.18%

Purchase this Solution
Solution Summary

The problem asks for the calculation of swap fixed rate (SFR) for a plain vanilla, two-year interest rate swap. The solution provides a detailed step by step calculation.

Solution Preview

See attached file

Let the notional Principal be= $10,000,000 (it can be any figure; values of interest payments will change accordingly but SFR will remain the same)
Swap initiation - January 1, 200X
The half yearly payment are made every six months beginning July 1, 0X,
Let the fixed rate payment every half year be F (Colum E)
Floating rate payments are shown in the table below Column C
We also calculate the discount factors
It is customary to discount cash flows in a swap at LIBOR rates which in this case is equal to 2..18%

A B C D E F
FRA Floating rate interest payment Fixed rate interest payment "Discount factor for discounting to the beginning of the ...

Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • What derivative instrument have you created synthetically

    What is the swap rate on a one-year plain-vanilla interest rate swap? Let L be the Fair value of SWAP Fixed rate.

  • swap fixed rate (SFR)

    69639 Swap fixed rates What would be the swap fixed rate (SFR) for a plain vanilla, two-year interest rate swap, payments every six months beginning 07/01/0x, with the following assumptions/data: Swap initiation, January 1, 200x FRA1,0 = 2.221%

  • Five short problems on derivatives, swaps, warrants

    A swap dealer notes the following spot interest rates: 6 months 5.55 percent 12 months 5.75 percent 18 months 5.95 percent 24 months 6.10 percent Determine the equilibrium swap price on a semiannual payment, two-year swap. 4.

  • Swaps and other Derivatives

    A swap dealer notes the following spot interest rates: 6 months 5.55 percent 12 months 5.75 percent 18 months 5.95 percent 24 months 6.10 percent Determine the equilibrium swap price on a semiannual payment, two-year swap. 4.

  • Finance

    vanilla swap 4. put-call parity See attached file This solution is comprised of answers related with finance.

  • Slidell Company Derivatives: Accounting for Swaps

    The interest rate for the first year is the prevailing market rate of 7%, and the rate in 2016 will be equal to the market interest rate on January 1, 2016.

  • Are you better off playing the lottery or buying bonds?

    What this means is that the going rate for plain vanilla bonds in the market currently is 5%. Investors will not pay for any plain vanilla bond for an amount that will yield them anything other than 5%.

  • Risk-Free Zero Coupon Bond

    Answer: Given that, One year LIBOR rate 10% 2 year SWAP Rate 11% 3 Year SWAP Rate 12% 2 year libor Zero rate 10.46% 3year LIBOR Zero Rate 11.16% 8.

  • Interest Rate Swap

    243452 If the prime rate at the end of 1st, 2nd, 3rd, 4th, and 5th year turns out 6%, 6.5%, 7%, 7%, and 6.8%, respectively, what should be the effective interest payment (i.e. interest payment on $200 million loan plus net payment from interest rate swap

View More Related Solutions