Sally took a loan of $15,000 for two years at a variable interest rate. Interest payments to the bank are made at the end of each year based on the 1-year spot interest rate at the start of that year and the loan amount is paid back at the end of 2 years. The current one-year spot rate is 3.5% and the 2-year spot rate is 4%.

Sally wanted to pay a fixed interest rate instead of the variable rates. So she enters into a two-year interest rate swap with annual settlement periods.

One year has passed and the 1-year spot interest rate today is the implied 1-year forward rate from time 1 to time 2. Determine the market value of the swap to Sally.