Question

Suppose the current term structure of interest rates, assuming annual compounding, is as follows: s_1s 1 ​ s_2s 2 ​ s_3s 3 ​ s_4s 4 ​ s_5s 5 ​ s_6s 6 ​ 7.0% 7.3% 7.7% 8.1% 8.4% 8.8% What is the discount rate d(0,4)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 0.45670.4567 then you should submit an answer of 0.4570.457.

Answer 1

7.32

Step-by-step explanation:

Swap rate is fixed rate that swap receiver requires for the paying the uncertain rate. SWAP rate is fixed interest rate that is required by Swap receiver in exchange of floating rate of LIBOR. Swap rate can be calculated by multiple formula using the spreadsheet. The formula listed below is the simplest version;

r =
`\frac{1-d (0, 4)} {∑4 d(0, t)}`

= 1-d (0, 4) /4 T=1 d(0,t) = 0.0732

= 7.32