Business, 02.06.2020 20:59 Destinywall

For the following problem, you are given the following t-year spot rates:
year 1 2 3 4 5
spot rate 4% 5% 5.75% 6.25% 6.5%
James and Associates has a line of credit that will permit it to borrow $400,000 in year one; an additional $200,000 in year two for a total of $600,000; and an additional $400,000 in year three for a total of $1,000,000. Under the loan, the interest rate resets at the beginning of each year and is equal to the one-year spot interest rate at the time of reset. James enters into a three year interest rate swap where the notional amount matches the amount available under the line of credit and variable rate matches the rate for the line of credit.
Required:
A) Determine the swap rate.

Answers: 2

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For the following problem, you are given the following t-year spot rates:
year 1 2 3 4 5