Boeing (BA) borrowed a 5-year $250 million loan on 1st September 2015 from JP Morgan with a floating annual interest rate of LIBOR plus 110 basis points (APR), paid semi-annually. The CFO of BA had expected that interest rate would rise in the coming years and decided to enter into a plain vanilla interest rate swap contract with Deutsche Bank (DB) sometime in February 2016. According to the swap contract, which specifies semi-annual net cash adjustment that coincides with the loans interest payment, BAwill pay at a fixed annual rate of 2.6% to DB and receive LIBOR plus 110 basis points in return. The notional principal of the swap equals the amount of BAs debt. Assume that the loans interest payments are to be made on 1st March and 30th August of each year. Today is 1st May 2017.

Explain the above situation with a diagram.

Calculate the net cash flow from the swap on each of the interest payment dates.

Find the value of the contract as of today.

Use the appropriate LIBOR rate from the following table. Ensure that you state all the assumptions clearly.

Libor Rates (USD)	Latest (%)
Libor Overnight	0.92833
Libor 1 Week	0.94500
Libor 1 Month	0.99222
Libor 2 Month	1.04056
Libor 3 Month	1.17039
Libor 6 Month	1.42361
Libor 1 Year	1.77483

Today is May 1st