Swap Valuation. The date is January 3, 2019 and you just returned to work from a thorough and exhausting celebration of the New Year. As a junior clerk on the USD fixed income derivative desk your first transaction of the year involves a 5Y fixed-for-floating swap with yearly payments on $100m notional. Bloomberg provides you with the following data (attached)

A.In terms of cash-replication, the above 5Y plain vanilla swap corresponds to holding what positions in what type of instruments?

B.How much is the swap worth at inception?

C.Calculate the 5Y swap rate for an annual fixed-for-floating USD swap. What is an appropriate bid-ask spread assuming that the Bloomberg data are midpoints?

D.You ponder various strategies to hedge the resulting interest-rate exposure. Describe two different strategies which you could use to hedge the transaction.

E.Optional. Your company has sold a 6Y plain-vanilla swap on 1Y LIBOR precisely one 20 year ago for a swap rate of 7.15%; as a consequence, you receive fixed and pay floating. What value should your accounting system attribute to the swap today (notional principal: $40m)?