Under the terms of an interest rate swap, PDX Corp has agreed to receive 12% per annum

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Under the terms of an interest rate swap, PDX Corp has agreed to receive 12% per annum and to pay six-month LIBOR in return on a notional principal of $150 million with payments being exchanged every six months. The swap has a remaining life of 10 months. The six-month LIBOR yield curve is downward sloping and rate for next two payment dates are 11% and 13% per annum with continuous compounding. The six-month LIBOR at the last payment date was 11.5% per annum.

(a) What is the value of the fixed-rate bond?

(b) What is the value of the floating-rate bond?

Posted Date: May 17, 2024 10:09 PM

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Under the terms of an interest rate swap, PDX Corp has agreed to receive 12% per annum

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