Jade Company enters into a swap contract with Hot Box Corporation with a three-year term contract on a principal of USD200 million. The spot exchange rate is USD2.00 per GBP. Jade pays Hot Box 4 percent per year on GBP100 million and Hot Box pays Jade 6 percent per year on USD200 million at the end of each year for three years. The companies make these interest payments every six months: the swap ends after six semi-annual payments and the principals are handed back after three years.

Using zero-coupon bond prices (maturing every six months) given below, compute the value of this swap.

Zero-Coupon Bond Prices in the United States (Domestic) and the United Kingdom (Foreign)

Time to MaturityUS Zero-Coupon Bond PricesUK Zero-Coupon Bond

(in years) (n)(in dollars) [B(n)]Prices (in pounds) [B(n)_e]

0.50.990.98

10.970.96

1.50.950.93

20.930.91

2.50.910.88

30.880.85