Management and Organizational Studies 4312A/B Study Guide - Midterm Guide: Discounting, Net Present Value, Spot Contract

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 4312A/B
• Professor: Shahbaz Sheikh

Document Summary

A) the fixed interest rate which makes the swap a zero-npv deal is 6. 12%, b) Npv= pv of amount to be received - pv of payments=0. Let single amount to be received be x. Pv of amount to be received = pv of payments. Single amount to be received each year x total discount factor = floating rate payments*discount factor. The standard deviation of the first difference check is 8813. 84. 6. 95: mean of our distribution of npv0s is 6538. 552436, and standard deviation is. 13392. 04969: by using normal method, the var of this swap is 10788. 61152, and the expected. Raroc is 0. 606 = 60. 6: a) the standard error is 1345. 951637, and the confidence interval is [3900. 487228, 9176. 617643: the simulation depicts that the swap contract gives us a positive npv, even though the number is relative small, compared to our initial investment million. However, 100 random samples may not provide sufficient data to predict the future spot rate.