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.