Question
A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, 6-month LIBOR is exchanged for 7%
A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the
swap, 6-month LIBOR is exchanged for 7% per annum (compounded semiannually). The
average of the bid-offer rate being exchanged for 6-month LIBOR in swaps of all
maturities is currently 5% per annum with continuous compounding. The 6-month LIBOR
rate was 4.6% per annum 2 months ago. What is the current value of the swap to the party
paying floating? What is its value to the party paying fixed?
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Principles of Finance
Authors: Scott Besley, Eugene F. Brigham
5th edition
1111527369, 978-1111527365
