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In September 2020, swap dealers were quoting a rate for five-year euro interest-rate swaps of...

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Finance

In September 2020, swap dealers were quoting a rate for five-year euro interest-rate swaps of 5.2% against Euribor (the short-term interest rate for euro loans). Euribor at the time was 4.8%. Suppose that A arranges with a dealer to swap a 10 million five-year fixed-rate loan for an equivalent floating-rate loan in euros, answer the following: (Leave no cells blank - be certain to enter "0" wherever required.)

a. Assume the swap is fairly priced. What is the value of this swap at the time that it is entered into?

Swap value 0 selected answer correct

b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 1.8%. Who gains and who loses?

multiple choice

  • Dealer gains; A loses Correct

  • A gains; Dealer loses

c. What is now the value of the swap to A for each 1,000 of par value? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Swap value 41.90 selected answer incorrect

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