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A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, six-month BBSW is exchanged for 7%
A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, six-month BBSW is exchanged for 7% per annum fixed (compounding semi-annually). The average of the bid-offer rate being exchanged for six-month BBSW in swaps of all maturities is currently 5% per annum with continuous compounding. The six-month BBSW rate was 4.6% per annum (semi-annual) two months ago. What is the current value of the swap to the party paying floating? What is the value to the party paying fixed?
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