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8. The six-month LIBOR rate observed three months ago was 2.2% with semi-annual compounding. Suppose that the continuously compounded three- and nine- month LIBOR rates
8. The six-month LIBOR rate observed three months ago was 2.2% with semi-annual compounding. Suppose that the continuously compounded three- and nine- month LIBOR rates are 2.45% and 2.75%, respectively. A semi-annual pay interest rates swap where the fixed rate is 2.45% (with semi-annual compounding) has a remaining life of nine months. If the swap has a principal value of $10,000,000, what is the value of the swap to the party receiving a floating rate of interest using the FRA methodology?
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