Question 1 . Plain Vanilla Interest Rate Swap ( 20 marks ) Incredible Inc ., a manufacturer of children’s toys , enters into a two – year plain…

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Question 1 . Plain Vanilla Interest Rate Swap ( 20 marks )Incredible Inc ., a manufacturer of children’s toys , enters into a two – year plain vanillainterest rate swap , in which the corporation will receive a fixed rate and pay a floating rateof LIBOR . The national amount on this swap is $75 million . Swap payments will be nettedevery 180 days , and the LIBOR requires the assumption of a 360 – day year . The termstructure of LIBOR on the swap initiation date is as followsDaysRate ( /0 )3 50What is the first net payment on the swap ? Who makes this payment , Incredible Incor the swap dealer ? ( 1 mark )Assume that it is now 120 days into the life of the swap . The new term structure ofLIBOR is as followsDaysRate ( / 0 )3. 70Calculate the value of the swap on Day 120 . ( 6 marks )Assume that it is now 360 days into the life of the swap . The new term structure ofLIBOR is as followsDays Rate ( /0 )4 00Calculate the net payment on the swap on Day 540 , and the value of the swap onDay 360 . ( 6 marks )

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