Question
A semi-annual pay interest rate swap where the fixed rate is 3.8% (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 3.8% (with semi-annual compounding) has a remaining life of nine months. The six-month LIBOR rate observed three months ago was 3.5% with semi-annual compounding. Todays three and nine month LIBOR rates are 3.9% and 4.3% (with continuous compounding). The implied forward rate is 4.551% with semi-annual compounding. If the swap has a principal value of $6,000,000, what is the value of the swap to the party receiving a floating rate of interest using the FRA methodology. (Please do not round intermediate calculations.)
| A. | $12,861 | |
| B. | $12,815 | |
| C. | $12,903 | |
| D. | $12,686 |
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Introduction To Corporate Finance
Authors: Laurence Booth, Sean Cleary
3rd Edition
978-1118300763, 1118300769
