Suppose that a company entered into an interest rate swap some time ago. The company pays 6-month LIBOR and receives 3% per annum with semiannual compounding on a notional principal of $100 million. All payments of the swap are made semiannually. The swap has a remaining life of 5/4 years. The LIBOR rates per annum with continuous compounding for 3-month, 9-month, 15-month maturities are 2.4%, 3% and 4% respectively. The 6-month LIBOR rate on the last payment date was 2.6% per annum with semiannual compounding.

(a) An interest rate swap can be valued as the difference between the value of a fixed-rate bond and the value of a floating-rate bond. Use this approach to calculate the value of this interest rate swap for the company now.

(b) An interest rate swap can be valued as a portfolio of forward rate agreements. Use this approach to calculate the value of this interest rate swap for the company now.

Suppose that a company entered into an interest rate swap some time ago. The company pays 6-month LIBOR and receives 3% per annum with semiannual compounding on a notional principal of $100 million. All payments of the swap are made semiannually. The swap has a remaining life of 5/4 years. The LIBOR rates per annum with continuous compounding for 3-month, 9-month, 15-month maturities are 2.4%, 3% and 4% respectively. The 6-month LIBOR rate on the last payment date was 2.6% per annum with semiannual compounding. (a) An interest rate swap can be valued as the difference between the value of a fixed-rate bond and the value of a floating-rate bond. Use this approach to calculate the value of this interest rate swap for the company now. (b) An interest rate swap can be valued as a portfolio of forward rate agreements. Use this approach to calculate the value of this interest rate swap for the company now. Suppose that a company entered into an interest rate swap some time ago. The company pays 6-month LIBOR and receives 3% per annum with semiannual compounding on a notional principal of $100 million. All payments of the swap are made semiannually. The swap has a remaining life of 5/4 years. The LIBOR rates per annum with continuous compounding for 3-month, 9-month, 15-month maturities are 2.4%, 3% and 4% respectively. The 6-month LIBOR rate on the last payment date was 2.6% per annum with semiannual compounding. (a) An interest rate swap can be valued as the difference between the value of a fixed-rate bond and the value of a floating-rate bond. Use this approach to calculate the value of this interest rate swap for the company now. (b) An interest rate swap can be valued as a portfolio of forward rate agreements. Use this approach to calculate the value of this interest rate swap for the company now