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A financial institution has agreed to pay 4% per annum and to receive three-month LIBOR in return in an interest rate swap. The notional principal
A financial institution has agreed to pay 4% per annum and to receive three-month LIBOR in return in an interest rate swap. The notional principal is $80 million and payments are exchanged every three months. The swap has a remaining life of 11 months. Three-month forward LIBOR for all maturities is currently 4.8% per annum. The three-month LIBOR rate one month ago was 4.4% per annum. OIS rates for all maturities are currently 4.5% with continuous compounding. All other rates are compounded quarterly. What is the value of the swap?
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