Fundamentals of Futures and Options Markets, 8e (Hull) Chapter 7 Swaps

15) An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 3% is paid and 12-month LIBOR is received. A exchange of payments has just taken place. The one-year, two-year and three-year LIBOR/swap zero rates are 2%, 3% and 4%. All rates an annually compounded. What is the value of the swap as a percentage of the principal when LIBOR discounting is used?

A) 0.00

B) 2.66

C) 2.06

D) 1.06

16) A semi-annual pay interest rate swap where the fixed rate is 5.00% (with semi-annual compounding) has a remaining life of nine months. The six-month LIBOR rate observed three months ago was 4.85% with semi-annual compounding. Today's three and nine month LIBOR rates are 5.3% and 5.8% (continuously compounded) respectively. From this it can be calculated that the forward LIBOR rate for the period between three- and nine-months is 6.14% with semi-annual compounding. If the swap has a principal value of $15,000,000, what is the value of the swap to the party receiving a fixed rate of interest?

A) $74,250

B) -$70,760

C) -$11,250

D) $103,790

17) Which of the following describes the way a LIBOR-in-arrears swap differs from a plain vanilla interest rate swap?

A) Interest is paid at the beginning of the accrual period in a LIBOR-in-arrears swap

B) Interest is paid at the end of the accrual period in a LIBOR-in-arrears swap

C) No floating interest is paid until the end of the life of the swap in a LIBOR-in-arrears swap, but fixed payments are made throughout the life of the swap

D) Neither floating nor fixed payments are made until the end of the life of the swap

18) Which of the following describes a 3-month overnight indexed swap (OIS)?

A) A fixed rate is exchanged for the overnight rate every day for three months

B) LIBOR is exchanged for the overnight rate every day for three months

C) The arithmetic average of overnight rates is exchanged for a fixed rate at the end of three months

D) The geometric average of overnight rates is exchanged for a fixed rate at the end of three months

19) Which of the following is a typical bid-offer spread on the swap rate for a plain vanilla interest rate swap?

A) 3 basis points

B) 8 basis points

C) 13 basis points

D) 18 basis points

20) Which of the following describes the five-year swap rate?

A) The rate on a five-year loan to a AA-rated company

B) The rate on a five-year loan to an A-rated company

C) The rate that can be earned over five years from a series of short-term loans to AA-rated companies

D) The rate that can be earned over five years from a series of short-term loans to A-rated companies