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A $30M interest rate swap has a remaining life of 10 months. The swap stipulates that the fixed rate is 4.5%, while the floating rate
A $30M interest rate swap has a remaining life of 10 months. The swap stipulates that the fixed rate is 4.5%, while the floating rate is the 3-month LIBOR +1%. (Assume 91 days for each period of 3 months). The 3-month LIBOR forward rates are given in a table below. The LIBOR, 2 months ago, was 2.9%. The continuous time zero-coupon prices are given below. Use those to discount the cash-flows.
What is the market value of this SWAP for the party paying the fixed rate?
Show your work for each cash flow to get full credits.
91 days LIBOR Forward Rates | |
Term | rate |
1x4 | 2.90% |
2x5 | 2.85% |
3x6 | 2.84% |
4x7 | 2.88% |
5x8 | 2.90% |
6x9 | 2.91% |
7x10 | 2.92% |
8x11 | 2.92% |
9x12 | 2.92% |
Zero-Coupon prices | |
T (month) | Price |
1 | 0.9976 |
2 | 0.9953 |
3 | 0.9929 |
4 | 0.9904 |
5 | 0.988 |
6 | 0.9856 |
7 | 0.9831 |
8 | 0.9807 |
9 | 0.9783 |
10 | 0.9761 |
11 | 0.9737 |
12 | 0.9712 |
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