In the assignments folder you will find an excel worksheet named “LIBOR rates.xl

Question

In the assignments folder you will find an excel worksheet named “LIBOR rates.xlsx” that includes a snapshot of LIBOR rates and U.S. treasury rates for different maturities.

Calculate the 3-year swap rate for 6-month LIBOR.

Duration USD LIBOR U.S. Treasuries overnight 1.19% 1.01% 1 week 1.21% 1.03% 2 weeks 1.28% 1.09% 1 month 1.36% 1.17% 2 months 1.43% 1.24% 3 months 1.48% 1.28% 6 months 1.66% 1.44% 12 months 1.94% 1.60% 18 months 2.10% 1.68% 24 months 2.28% 1.76% 30 months 2.54% 1.83% 36 months 2.70% 1.89% 42 months 2.88% 1.95% 48 months 2.95% 2.01% 54 months 3.00% 2.06% 60 months 3.05% 2.11%

Explanation / Answer

6 months LIBOR rate as on today = 1.19%

6 months LIBOR rate after 3 years = 2.70%

Increase in LIBOR rate = 2.70% - 1.19% = 1.51%

swap points = Increase in LIBOR rate * 100= 1.51*100 = 151 basis points

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