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Suppose the 0.5-year zero rate is 6% and the 1-year zero rate is 8%. Consider a 1-year, plain vanilla, semi-annual pay, fixed-for-floating interest rate swap.
a) What is the swap rate that will make this swap worth zero?
b) What is the dollar duration of $100 notional amount of this zero-cost swap?
Please explain in detail.
When choosing which types of assets to hold, the buyer must determine the trade-off between:
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