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You sell a two-year swap to exchange LIBOR for fixed-rate payments on a $100 million notional principal. LIBOR rates are as follows: One-year spot rate
You sell a two-year swap to exchange LIBOR for fixed-rate payments on a $100 million notional principal. LIBOR rates are as follows: One-year spot rate 2% per year. Forward rate in the second year 3.5% per year. The present value of the floating-rate payments is currently estimated as:
a. | [$2/(1.02) + $3.5/(1.02)(1.035)2] = $5.16 million | |
b. | [$2/(1.02) + $3.5/(1.035)] = $5.34 million | |
c. | [$2/(1.02) + $3.5/(1.035)2] = $5.23 million | |
d. | [$2/(1.02) + $3.5/((1.02)(1.035))] = $5.28 million |
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