Find the Fixed Rate on a Plain Vanilla Interest Rate

question 60

Multiple Choice

Find the fixed rate on a plain vanilla interest rate swap with payments every 180 days (assume a 360-day year) for one year.The prices of Eurodollar zero coupon bonds are 0.9756 (180 days) and 0.9434 (360 days) .

• A)5.9 percent
• B)5 percent
• C)6 percent
• D)5.5 percent
• E)2.95 percent

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Definitions:

Total Costs

The sum of all expenses incurred in the production of goods or services, including fixed and variable costs.

Total Revenue

The overall income generated by a firm from its sales activities before any costs or expenses are subtracted.

Normal Return

The minimum profit necessary for a company to remain in business, often equated to covering opportunity costs.

Total Fixed Costs

The sum of all costs required to produce any output, assuming they remain constant regardless of the level of production.