Suppose that OIS rates for all maturities are 2.5% and swap rates for all maturities are 3%. Which of the following is true?
A. Forward LIBOR rates are greater when OIS discounting is used than when LIBOR discounting is used
B. Forward LIBOR rates are less when OIS discounting is used than when LIBOR discounting is used
C. Forward LIBOR rates are the same for both OIS discounting and LIBOR discounting
D. Either A or B can be true
C
When the yield curves are flat, all forward LIBOR rates are 3% regardless of whether OIS or LIBOR discounting is used. This is because, when all forward LIBOR rates equal 3%, all exchanges on all swaps are worth zero regardless of the discount rate used.
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For Proposal 2, the initial outlay equals ________. (See Table 11.2)
A) $120,720 cash outflow B) $164,560 cash outflow C) $150,000 cash outflow D) $167,520 cash outflow
Which of the following are included in the terminal cash flow?
A) the expected salvage value of the asset B) recapture of any working capital increase included in the initial outlay C) any tax payments or receipts associated with the salvage value of the asset D) all of the above