Solved: Swap rate on a one-year plain-vanilla interest rate swap, Finance Basics

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Swap rate on a one-year plain-vanilla interest rate swap

Question 1. Suppose that you buy a cap and write a floor, with the same strike rate, maturity, notional principal, et cetera. Suppose that the values of the two options are equal. What derivative instrument have you created synthetically? Are you long or short this instrument?

Question 2. The six-month s.a. $LIBOR is 5.00%, and the one-year s.a. $LIBOR is 5.15%. What is the swap rate on a one-year plain-vanilla interest rate swap?

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Finance Basics: Swap rate on a one-year plain-vanilla interest rate swap

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