Explain why a plain vanilla interest swap has no initial

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1.You remember that the notion of swap/cap/floor parity involves creating a zero cost collar such that the cap premium equals the floor premium.  You are looking at a $50, non-dividend paying stock, with the riskfree rate at 5%.  You wonder what option striking price would make the one-year call premium equal to the one-year put premium.  Your colleague tells you it is simple to figure out and can almost be done in your head.  What striking price gives this result?

2. Explain why a plain vanilla interest swap has no initial value if it is priced at market.

3.A swap dealer notes the following spot interest rates:  six months, 5.55%; twelve months, 5.75%; eighteen months, 5.95%; and twenty-four months, 6.10%.  Determine the equilibrium swap price on a semi-annual payment, two-year swap.

Reference no: EM13512703

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