A corporation enters into a $40 million notional amount interest rate swap. The swap calls for the corporation to pay fixed rate and receive a floating rate of LIBOR. The payments will be made every 90 days for one year and will be based on the 90/360 adjustment factor. The term structure of LIBOR when the swap is initiated:

Days Rate (%)

90 8.10

180 8.45

270 8.50

360 8.65

a. What are the 4 discount bond prices? (round to 4 decimals)

Term Rate Discount Bond Price

90 days 8.10% ?

180 days 8.45 ?

270 days 8.5 ?

360 days 8.65 ?

b. What is the fixed rate on the swap? (round to 4 decimals)

c. What is the fixed rate payment?

d. What is the floating rate payment (using the 90 day LIBOR rate)?

e. What is the net payment? Does the fixed or floating rate payer owe?

Assume it is now 30 days later. The new term structure is as follows:

Days Rate (%)

60 7.90 ?

150 8.25 ?

240 8.30 ?

330 8.45 ?

Here are the new discount bond prices:

Term Rate Discount Bond Price

60 days 7.9% B30(60) = 1/(1 + 0.079(60/360)) = 0.9870

150 days 8.25 B30(150) = 1/(1 + 0.0825(150/360)) = 0.9667

240 days 8.30 B30(240) = 1/(1 + 0.0830(240/360)) = 0.9476

330 days 8.45 B30(330) = 1/(1 + 0.0845 (330/360)) = 0.9281

f. For $1 notional, what is the value of the remaining fixed payments? (round to 4 decimals)

g. For $1 notional, what is the value of the remaining floating payments? (round to 4 decimals)

h. What is the value of the swap (in $)?