Interest Rate Derivative

1. A corporation agrees to pay on a $25 million one year swap. The settlement terms are "advanced set, settle in arrears." The day count for both sides of the swap are actuaV360. The fixed rate on the swap is 2.25% and the swap is initiated December, 2018. Assume the following day count and LIBOR fixing are observed: LIBOR DayCount a. December 2018 2.00% b. March 2019 2.15% 90days (Dec 2018 to March 2019) c. June 2019 2.45% 92days (March 2019 to June 2019) d. September 2019 2.90% 91days (June 2019 to September 2019) e. December 20169 92days (September 2019 to December 2019) List all 4 payments made or received by the corporation as a result of the swap. March: June: September: December 2. It costs AAPL 3.85% to borrow in the fixed rate market and 3mLIBOR +25 to borrow in the floating rate markets for 2 years. Two year Swap rates are quoted at 3.65%/3.66% by a Swaps dealer. Assuming they want to have a floating rate liability, how could they utilize the swaps market to lower their borrowing costs and by how many basis points? 3. You enter into a 3-month (assume 90 days) LIBOR based forward rate agreement with a notional of $25mm and fix a rate of 3.25%. 3-Month LIBOR rates rise to 4.00% at expiration. What is the payoff on the agreement? 3. You enter into a 3-month (assume 90 days) LIBOR based forward rate agreement with a notional of $25mm and fix a rate of 3.25%. 3-Month LIBOR rates rise to 4.00% at expiration. What is the payoff on the agreement? 4. Assume you are a floating rate borrower. Circle the position you would take in each of the following instruments to protect yourself against a rise in LIBOR rates: (you will circle one position for each type of derivative, i.e. whether you would Pay or Receive on a swap). Position (circle one for each derivative) a. Swaps PAY RECEIVE b. FRA LONG SHORT c. EuroDollar Futures LONG SHORT d. IR Option Call Put e. Swaption Payer Receiver                                                                                                

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