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 Maturity US Zero-Coupon Bond Prices UK Zero-Coupon Bond

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

0.5 0.99 0.98

1 0.97 0.96

1.5 0.95 0.93

2 0.93 0.91

2.5 0.91 0.88

3 0.88 0.85