Chapter 23

Task 

In this assignment, you will solve problems about Interest Rate Futures, Forwards, and Swaps.

Instructions 

1. Use your textbook to answer the following questions from Chapter 23:
   1. Exercise 16 and 17. 
2. Please, upload xls, xlsx file.
3. Please, use the full computing power of Excel.

 

16.    Two firms X and Y are able to borrow funds as follows:

A: Fixed-rate funding at 4% and floating rate at Libor − 1%.

B: Fixed-rate funding at 5% and floating rate at Libor + 1%.

Show how these two firms can both obtain cheaper financing using a swap. What swap

would you suggest to the two firms if you were an unbiased advisor?

17.    Firm A can borrow fixed rate at 10%. It can also borrow floating at Libor + 1%. The

market swap rate at the bid is Libor versus 8.9% and is Libor versus 9.1% at the ask

(i.e., the firm can enter into a swap by paying fixed at 9.1% or receiving at 8.9%). Find

the cheapest form of financing for the firm if it wishes to be in floating-rate debt.