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A $100 million interest rate SWAP has a remaining life of 12 months. Under the terms of the SWAP the 6-month SOFR rate is
A $100 million interest rate SWAP has a remaining life of 12 months. Under the terms of the SWAP the 6-month SOFR rate is exchanged for 4.5%/year compounded semi- annually (you pay the SOFR rate and receive the fixed rate). The current six-month SOFR rate is 5.5%/year with semi-annual compounding and the forward SOFR rate between 6 months and 12 months is 4.75%/year with semi-annual compounding. What is the current value of the SWAP? Use a risk-free rate of 4%/year to discount both cash flows. Please explain your answer. Scan your handwritten work and upload the file.
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