Thtroduction to Derivative Securities
TOTAL POINTS 6
1. Term structure of interest rates and swap valuation
Suppose the current term structure of interest rates, assuming annual compounding, is as follows:
Si
$9
SE
7.096
7.396
7.796
8,436
8.895
What is the discount rate d(0.4)? (Recall that interest rates are always quoted on an annual basis unless
stated otherwise.)
Please submit your answer rounded to three decimal places. So for example, if your answer is 0.1567 then you should
submit an answer of 0,457.
Enter answer here
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Answer:
plain vanilla swap is the simplest type of swap in the market, often used to hedge floating interest rate exposure. Interest rate swaps are a type of plain vanilla swap. Interest rate swaps convert floating interest payments into fixed interest payments (and vice versa).
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