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* A. 1. A $100 million interest rate swap has a remaining life of 9 months. Under the terms of the swap, 6-month LIBOR is
* A. 1. A $100 million interest rate swap has a remaining life of 9 months. Under the terms of the swap, 6-month LIBOR is exchanged for fixed 5% per annum (compounded semiannually). The 3-month and 9-month spot rates are 5.2% and 5.8%, continuously compounded. Three months ago, the 6-month LIBOR was 4.5%.
What is the current value of the swap to the party paying floating? Use the bond valuation approach.
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