Suppose That the Yield Curve Is Flat at 5% Per

question 4

Short Answer

Suppose that the yield curve is flat at 5% per annum with continuous compounding. A swap with a notional principal of $100 million, in which 6% per annum is received and six-month BBSW is paid, will last for another 15 months. Payments are exchanged every six months. The six-month BBSW rate at the last reset date three months ago) was 7% per annum semi-annual compounding). Answer in millions of dollars to two decimal places.
i) What is the value of the fixed-rate bond underlying the swap? _ _ _ _ _ _
ii) What is the value of the floating-rate bond underlying the swap? _ _ _ _ _ _
iii) What is the value of the payment that will be exchanged in 3 months? _ _ _ _ _ _
iv) What is the value of the payment that will be exchanged in 9 months? _ _ _ _ _ _
v) What is the value of the payment that will be exchanged in 15 months? _ _ _ _ _ _
vi) What is the value of the swap? _ _ _ _ _ _

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Definitions:

Voucher Journal

A record that details every financial transaction of a business, paired with the documentation that supports the transaction as a part of the accounting system.

Voucher System

A control mechanism in accounting that ensures all purchases and expenditures are properly authorized before payment is made.

Petty Cash Fund

A small amount of cash kept on hand for minor or incidental expenses.

Voucher System

A control mechanism in accounting that involves authorization and documentation before a financial transaction is made.