The work has not been graded but I like the output that was submitted to me. Is it possible for the same prof to do the next assignment I will be submitting? If possible, I will greatly appreciate it.
Hello – I am a bit confused and I’ve been stuck on this all day – it has to do with valuing swaps using the Zero Coupon Valuation method, I know how to use the Zero Coupon Valuation method on bonds but I have no clue on how it works with swaps? I know you produce one cash flow at maturity date which is found using a result of finding the zero coupon rate. Anways here are the two swaps:
Swap A: ALTECO pays 3% p.a. on a principal of US$450m and receives 4% p.a. on a principal of £250 million. Cash flows are exchanged semi-annually and it is exactly six months to the next swap payment date. The swap has eighteen months to run.
Swap B: ALTECO pays six-month sterling LIBOR on a principal of £350 million and receives six-month US dollar LIBOR on a principal of US$500 million. Cash flows are exchanged semi-annually and it is exactly six months to the next swap payment date. The swap has three years to run.
The current exchange rate for sterling is £1 = US$1.60 and the LIBOR/swap term structures in the UK and US are as follows (all rates continuously compounded):
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