Intel has entered into an interest rate

swap with ABC under which, it receives

5% per annum and pays six-month LIBOR

on a principal of 5O million for seven years

to ABC. The swap payments are made

every six months. Suppose thatABC

defaults on the eighth payment date, that

is the end of year 4 when the LlBOR/swap

interest rate (with semiannual

compounding) is 4.5% per annum for all

maturities. What is the loss to Intel as

seen at the end of year 4 (in millions)?

Assume that six-month LlBOR was 4%

per annum halfway through year 4. Select

one:

a.0.944

b.0.950

c.0.956

d.0.937