FIN 494 Exam Prepared 4_2020 | FIN494 Exam Prepared 4_2020

FIN 494 Exam Prepared 4 - 2020 Question 1 1. The main principle for pricing interest-rate swaps can be generally formulated as: Spot and forward rates much be equal when the swap is first originated Present Values of fixed and floating rate payments must be equal at any time Present Values of fixed and floating payments must be equal when the swap is originated Fixed-rate and floating-rate payments must be equal 10 points Question 2 1. Analyze a two-year swap agreement to exchange LIBOR for fixed-rate payments on a $100 million notional principal. The first payment will be made in one year; the second in two years. You have the following information on LIBOR rates: One-year spot rate is 4% per year. Forward rate in the second year is 6% per year. Find the floating-rate payments to be made in the second year. $4 million $5 million $6 million $7 million