Nearly 5.5 years ago, Bendigo Bank entered into an interest rate swap with Bank of Queensland (BOQ). Under the terms of the swap, Bendigo agreed to make half-yearly swap payments to BOQ at the rate of 9.35% pa, while BOQ agreed to make half-yearly swap payments to Bendigo at the 6-month Bank Bill Swap Rate (BBSW).

The last swap payment was made 5 months ago. The swap expires in 7 months time. The notional amount of the swap is $50 million. Assume all months have an equal number of days.

The recent history of BBSW is shown in the following table, expressed as annual percentage rates. To understand these rates, the (e.g.) interest accrued from today for 3 months at the BBSW is 3.030%/4 = 0.7575%.

The following table lists current interest rates for securities issued by banks in the Australian bank bill market. To understand these rates, the interest earned on $100 invested for (e.g.) four months is $100 * 0.01038 = $1.038.

a) How much is the upcoming coupon payment? [ b) Calculate the value of the swap today to BOQ. Show your calculations.

Date Today 1 month ago 2 months ago 3 months ago 4 months ago 5 months ago 6 months ago 1-Month BBSW 2.921% 2.841% 2.783% 2.717% 2.649% 2.622% 2.575% 3-Month BBSW 3.030% 3.006% 2.974% 2.914% 2.832% 2.821% 2.733% 6-Month BBSW 3.195% 3.143% 3.065% 3.058% 2.986% 2.959% 2.912% Months 1 2 3 4 5 6 7 8 9 Interest Rate 0.257% 0.519% 0.781% 1.038% 1.300% 1.649% 1.906% 2.168% 2.429%