FMP Quiz 3

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Joined: Mon May 09, 2016 10:39 am

FMP Quiz 3

Postby Aegis.Sameerdutta » Mon Oct 24, 2016 10:41 am

In the Solution to this question, factor for 3rd year is .89 in the answer whereas same should be .83 (i.e exp^.06*3), please confirm??

What is the value of following swap to the fixed rate payer using bond methodology? Assume that we are in floating rate reset date.
•$ 5 million notional, annual interest payment for fixed and floating legs and 3 years maturity
•Spot LIBOR rates: 1 year-4%, 2 years-5%, 3 years-6%
•The fixed rate is 4.5%

Choose one answer.

a. Gain of $ 675,000 Incorrect
b. Loss of $ 53,925 Correct
c. Loss of $ 65,345 Incorrect
d. Gain of $ 65,345 Incorrect
The correct answer is B

Calculation of above values for 1st year:
Cash flow: 5,000,000*4.5%= 225,000
Discount rate: exp(-0.04) = 0.96
Value of floating leg is par value as it’s a reset date


Marks for this submission: 0/1.

Finance Junkie
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Re: FMP Quiz 3

Postby edupristine » Tue Oct 25, 2016 5:58 am

Hi Aegis
I am attaching a image.
screenshot.1.jpg (46.16 KiB) Viewed 1383 times

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