Question
Assume that a swap contract just had an interest payment calculated on a 20 million principal The three-months Libor rate observed 1.5 months ago was
Assume that a swap contract just had an interest payment calculated on a 20 million principal The three-months Libor rate observed 1.5 months ago was 4.8% (quarterly compounded) and todays 1.5 months Libor and 4.5 months Libor are 4.9% and 5.1% respectively continuous compounded). If the swap contract matures in 4.5 months, calculate the value of the swap to the receiver of the swap rate (fixed term receiver). Assume that the swap pays Libor exchange for a 4.4% fixed rate quarterly compounded. What would happen to foxed term payer position (value of the swap) if interest rates increase?
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