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The six month LIBOR is 15% per annum with continuous compounding for all maturities.

1.The six month LIBOR is 15%per annum with continuous compounding for all maturities. Under the terms of an interest rate swap, SABIC Financial has agreed to pay 8%per annum and to receive six-month LIBOR in return on a notional principal of $150Million with payments being exchanged every six months. The swap has a remaining life of fifteen months. The six-month LIBOR at the last payment date was 6%per annum.


A) When was the last (i.e., most recent) payment made?


B) What are the remaining payment dates?

 

C) What is the value of the fixed-rate bond?


D) What is the value of the floating-rate bond?


E) What is the value of the swap to SABIC Financial?



2.Put options on a stock currently trading at $35 a share with strike prices $30 and $40 cost $4 and $6, respectively. Create(i) a bullish spreadand (ii) a bearish spread from these puts and construct a table that shows the profit (loss) for each strategy for change in stock price. Possible stock prices at expiration are 20, 30 40, 50 and 75. 


Construct a table that shows the profit and payoff forboth spreads.

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