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You enter a 2-year pay-fixed receive-floating interest rate swap with semi-annual payments on a notional principal of $20 million and the current term structure of

You enter a 2-year pay-fixed receive-floating interest rate swap with semi-annual payments on a notional principal of $20 million and the current term structure of interest rates is below based on a 360-day year.

L0(180) =0.040
L0(360) =0.050
L0(540) =0.060
L0(720) =0.070


A. What is the swap fixed rate?

B. What is the first net payment? Who makes the payment?

C. 180 days later, the new term structure of interest rates is below. Based on this new term structure, what is the value of the swap to you at 180 day?

L180(180) =0.030
L180(360) =0.040
L180(540) =0.050

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A Discount factor 1 d1 1 1 004 x 180360 098039 d2 1 1 005 x 360 360 095238 d3 1 1 0... blur-text-image

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