Question
Q2 [Hull, Practice Question 7.12 on p.175] A $100 million interest rate swap has a remaining life of 10 months. Under the terms of
Q2 [Hull, Practice Question 7.12 on p.175] A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, a six-month LIBOR is exchanged for 4% per annum (compounded semiannually). Six-month LIBOR forward rates for all maturities are 3% per annum (with semiannual compounding). The six-month LIBOR rate was 2.4% per annum 2 months ago. OIS rates for all maturities are 2.7% per annum with continuous compounding. Part a. What is the current value of the swap to the party paying floating? Part b. What is its value to the party paying fixed?
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