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15. Under the terms of an interest rate swap, PDX Corp has agreed to receive 10% per annum and to pay six-month LIBOR in return
15. Under the terms of an interest rate swap, PDX Corp has agreed to receive 10% per annum and to pay six-month LIBOR in return on a notional principal of $90 million with payments being exchanged every four months. The swap has a remaining life of 6 months. The six-month LIBOR yield curve is upward sloping and rates for next two payment dates are 14% and 12% per annum with continuous compounding. The six- month LIBOR at the last payment date was 10.5% per annum. (9 points) (a) What is the value of the fixed-rate bond? (b) What is the value of the floating-rate bond? (c) What is the value of the swap to PDX's counterparty? 15. Under the terms of an interest rate swap, PDX Corp has agreed to receive 10% per annum and to pay six-month LIBOR in return on a notional principal of $90 million with payments being exchanged every four months. The swap has a remaining life of 6 months. The six-month LIBOR yield curve is upward sloping and rates for next two payment dates are 14% and 12% per annum with continuous compounding. The six- month LIBOR at the last payment date was 10.5% per annum. (9 points) (a) What is the value of the fixed-rate bond? (b) What is the value of the floating-rate bond? (c) What is the value of the swap to PDX's counterparty
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