Question: Suppose under the terms of a swap AMR Corp. agreed to pay a fixed rate of interest and receive a ... Suppose under the terms of a swap AMR Corp. agreed to pay a fixed rate of interest and receive a variable rate of interest based on LIBOR. Payments are every six months and the swap has a remaining life of 14 months (i.e., there are three remaining payments with the next payment in 2 months). The fixed interest rate is 7% per year with semiannual compounding and the notional principal of the swap is $20 million. The LIBOR rate at the last payment date (4 months ago) was 6.5% per year with semiannual compounding. The LIBOR rate appropriate for discounting cash flows in 2 months is 7% per year with monthly compounding. The LIBOR rates appropriate for discounting cash flows in 8 and 14 months are 7.5% and 8% per year with semiannual compounding.

e.use the FRA approach to compute the value of AMRs swap.