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Pricing an interest rate swap. The five-year swap rate when cash flows are exchanged semiannually is 4.0%. A company wants a swap where it receives

Pricing an interest rate swap. The five-year swap rate when cash flows are exchanged semiannually is 4.0%. A company wants a swap where it receives payments at 4.2% per annum on a principal of $10 million. The OIS zero curve (used for discounting) is flat at 3.6%. How much should a derivatives dealer charge the company? All rates are expressed with semi-annual compounding.

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