A semi-annual pay interest rate swap where the fixed rate is 6.00% (with semi-annual compounding) has a remaining life of eight months.

The six-month LIBOR rate observed four months ago was 5.00% with semi-annual compounding.

Todays two and eight month LIBOR rates are 5.5% and 5.75% (continuously compounded) respectively.

Assume that OIS and LIBOR rates are the same.

If the swap has a principal value of $100,000, the value of the swap to the party receiving a fixed rate of interest is closest to which of the following ?

a.

$534.00

b.

$1,069

c.

$534.00

d.

$1,069

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