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Please show your work. Question 5 (10 points) Today, a $100 million interest rate swap has a remaining life of 12 months. Under the terms
Please show your work.
Question 5 (10 points) Today, a $100 million interest rate swap has a remaining life of 12 months. Under the terms of the swap, six-month LIBOR payments are exchanged for semi-annual fixed payments paid at a rate of 5% per annum. Today's six-month LIBOR rate reset payable is 6 months is 4.75% per annum and today's forward six-month LIBOR rate for the 6- to 12-month forward period is 6% per annum. All rates are given on an APR basis. Finally, the present value today of $1 received in 6 months is $.97680 and the present value today of $1 received in 12 months is $.94835. a) What is today's present value of the fixed swap payments? b) What is today's expected present value of the floating swap payments? c) What is today's value of the swap for the party receiving fixed payments and paying floating payments? Question 5 (10 points) Today, a $100 million interest rate swap has a remaining life of 12 months. Under the terms of the swap, six-month LIBOR payments are exchanged for semi-annual fixed payments paid at a rate of 5% per annum. Today's six-month LIBOR rate reset payable is 6 months is 4.75% per annum and today's forward six-month LIBOR rate for the 6- to 12-month forward period is 6% per annum. All rates are given on an APR basis. Finally, the present value today of $1 received in 6 months is $.97680 and the present value today of $1 received in 12 months is $.94835. a) What is today's present value of the fixed swap payments? b) What is today's expected present value of the floating swap payments? c) What is today's value of the swap for the party receiving fixed payments and paying floating paymentsStep by Step Solution
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