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Walmart and Apple each need to borrow $100 million for five years. The box below shows their credit ratings and applicable interest rates.
Barclays offer swap terms to Walmart and Apple based on a notional $100million
For five years, Walmart will pay 3.5% fixed to Barclays and receive 6 month LIBOR
For five years, Apple will pay 6 month LIBOR to Barclays and receive fixed 3.25%
Calculate the cash flows from this swap and explain the benefit to each party
Citi has made a 3-month loan of €3million at 3-month LIBOR rate against a 6-month deposit paying 6 month LIBOR. Citi expects 3-month LIBOR to be 6% in 3 months however Citi is concerned that LIBOR might fall to 5.125% within this time frame. The bank can sell a forward rate agreement (FRA) for €3million with an agreement rate set at 6% and a settlement rate of 5.12%. Should the bank sell the FRA?
Consider an investment portfolio with $20million invested in S&P500 stocks. These stocks have an expected return of 12% (per annum) and a standard deviation of 15% (per annum). The portfolio also holds $12m of Nikkei 300 stocks that have an expected return of 10.5% (per annum) and the standard deviation is 18% (per annum). The correlation between the S&P500 and the Nikkei 300 stock indices is 0.55. Calculate this portfolio's value at risk (VaR) at a 5% level for one week. What is
the correct interpretation of this value?
It is August and you believe US interest rates will fall by December. The current price of the December 30 year Treasury bond futures contract is 96- 09, and the yield on the 30-year Treasury bond is 6.4%. The price of a call option on the December Futures contract is 1-04, with an exercise price of 98-00. Assuming the yield on the 30 year Treasury bond fell to 6% in December and the futures price rose to 100. Calculate the profit or loss on your position.
