Question
A semi-annual pay interest rate swap where the fixed rate is 5% (with semi-annual compounding) has a remaining life of nine months. The six-month LIBOR
A semi-annual pay interest rate swap where the fixed rate is 5% (with semi-annual compounding) has a remaining life of nine months. The six-month LIBOR rate observed three months ago was 4.85% with semi-annual compounding. Today's three- and nine-month LIBOR rates are 5.3% and 5.8% (continuously compounded), respectively. From this it can be calculated that the forward LIBOR rate for the period between three and nine months is 6.14% with semi-annual compounding. If the swap has a principal value of $15,000,000, what is the value of the swap to the party paying a floating rate of interest?
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