Use a swap to hedge the following Balance Sheet, so that parallel shifts in the term structure don't have an impact on the equity value: The swap used to hedge is 1.5 year swap, you know the following discount factors: In order to get the answer, compute the following:
i. What is the adequate swap rate?
ii. What is the dollar duration of the swap?
iii. What is the value of equity and its dollar duration, prior to any hedging?
iv. What is the value of notional needed so that the swap position hedges any impact that parallel shifts in the yield curve may have on the value of equity?

Question

Use a swap to hedge the following Balance Sheet, so that parallel shifts in the term structure don't have an impact on the equity value:  The swap used to hedge is 1.5 year swap, you know the following discount factors:   In order to get the answer, compute the following: 
i. What is the adequate swap rate? 
ii. What is the dollar duration of the swap? 
iii. What is the value of equity and its dollar duration, prior to any hedging?
 iv. What is the value of notional needed so that the swap position hedges any impact that parallel shifts in the yield curve may have on the value of equity?

Quizplus · Accepted Answer

The Answer of Use a swap to hedge the following Balance Sheet, so that parallel shifts in the term structure don't have an impact on the equity value:  The swap used to hedge is 1.5 year swap, you know the following discount factors:   In order to get the answer, compute the following: 
i. What is the adequate swap rate? 
ii. What is the dollar duration of the swap? 
iii. What is the value of equity and its dollar duration, prior to any hedging?
 iv. What is the value of notional needed so that the swap position hedges any impact that parallel shifts in the yield curve may have on the value of equity?

Use a Swap to Hedge the Following Balance Sheet, So