Assignment2_PartI_solution

Assignment2_PartI_solution - The Johnson School at Cornell...

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Professor 1. N 5 T of N Th 2. (a 3% p 0 0 W A So b r George Ga otice that the .5% 4.0% ( The bank nets ff, each gainin ote that the 4.0% + he net payme 8.4% + a) Let us cons % x $10M = $ arty (as well a ൌ 10 െ 0.66 .3 ∙ ሺ݁ ି଴.଴ସ∙ଵ Which yields x lternatively, s t 0 1 2 3 0.1 ൅ ሺ9.703 olve this equa ecause of rou The Joh ao A e size of the c 8.4% 8.0%) s 0.5% for its s ng the 0.3% w net payment + 7.7% 4.0% ent of B is + 5.2% 8.4% sider the party $0.3M and the as to the coun 6 $ ஽ெ ∙ 15 ൅ 0. ൅ ݁ ି଴.଴ସ∙ଶ = 0.757171 m see the follow $CF 10 0.3 0.3 10.3 35ܴ െ 0.3ሻ݁ ି ation and get unding errors P hnson Scho Assignment comparative a = 1.5% 0.4% service we w with respect t of X is = 7.7% = 8.0% = 5.2% = 5.5% y who pays d e DM receipt nter party) is .66 $ ஽ெ ∙ ݔ ∙ ሺ݁ ݁ ି଴.଴ସ∙ଷ ሻ െ 1 mil DM. The wing table tha DM CF 15 15*R 15*R 15*(1+R) ିସ%ൈଵ ൅ ሺ9.5 t the DM coup in the table) Page 1 of 3 ool at Corn t 2 (Part I S advantage is %. = 1.1%. ill design a co to without th % 0.3%. % 0.3%. ollars and rec is x M DM. A zero. So ݁ ି଴.଴଺∙ଵ ൅ ݁ ି଴ 10݁ ି଴.଴ସ∙ଷ DM coupon r at is based on F(0,t) forward rate $0.66/DM $0.6469/DM $0.6341/DM $0.6216/DM 5115ܴ െ 0.3ሻ pon rate R=5. . nell Univer Solution) ontract that m e swap. ceives DM. E At initiation, t ଴.଴଺∙ଶ ൅ ݁ ି଴.଴ rate is 0.7571 n forward con e $value o DM CF 9.9 M 9.7035* M 9.5115* M 9.324*(1+ ሻ݁ ିସ%ൈଶ
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