Question
Suppose you have a 2.5-year remaining on an interest rate swap with a notional principal of $10, 000, 000 between Company A and Company B.
Suppose you have a 2.5-year remaining on an interest rate swap with a notional principal of $10, 000, 000 between Company A and Company B. Company A pays fixed rate and Company B pays the float rate. Fixed and float payments are exchanged every year and the last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and the floating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago, is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is 3.50%.
Calculate the present value of the fixed and floating legs of the swap, and determine the swaps net present value from Company As perspective. Assume annual compounding for discounting.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started