A pension fund wants to enter into a six month equity swap with a notional principal of Rs 60 million. Payments will occur in 90 and 180 days. The swap will allow the fund to receive the return on…

A pension fund wants to enter into a six-month equity swap with a notional principal of Rs 60 million. Payments will occur in 90 and 180 days. The swap will allow the fund to receive the return on index 1, currently at 5514.67. The fund is considering three different types of swaps, one of which would require it to pay a fixed rate, another that would require it to pay floating rate, and another that would require it to pay the return on index 2, which is currently at 1212.98. Refer to these as swap 1, 2, and 3. The term structure is as follows:

TermRateDiscount bond price90 days9%B_(90j = 1/(1+.09(90/360)) = 0.9780180 days10%B_(0(180) = 1/(1+.10(180/360)) = 0.9524

a. Find the fixed rate for swap 1. b. Find the payments on day 90 for swaps 1, 2 and 3. Assume that on day 90 stock index 1 is at 5609.81 and stock index 2 is at 1231.94. Be sure to indicate the net payment. c. Assume it is 30 days into the life of swap. Stock index 1 is at 5499.62 and stock index 2 is at 1201.45. The new term structure is as follow:

TermRateDiscount bond price60 days6.80%B_30(60) = 1/(1+.068(60/360)) = 0.9888150 days7.05%B_30(150) = 1/(1+.0705(150/360)) = 0.9715

Find the value of swap 1, 2 and 3.