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Your firm has decided to enter a $50 million notional, 1-year, pay fixed/receive floating interest rate swap having two semi-annual settlement dates. Before soliciting quotes

Your firm has decided to enter a $50 million notional, 1-year, pay fixed/receive floating interest rate swap having two semi-annual settlement dates. Before soliciting quotes from various swap dealers, your CFO has requested you to independently evaluate the swap. (Assume a 360-day year and that there are 180 days in each six-month interval.)

A. "Price" the swap (Act/360) using only current LIBOR spot rates (USD LIBOR overnight - 3.063%, USD LIBOR 1 Month - 3.596%, USD LIBOR 3 Months - 4.358%, USD LIBOR 6 Months - 4.91557%, USD LIBOR 12 Months - 5.39971%).

B. Based on your answer in (A), what is the "value" of the swap?

C. Assume that instantaneously after entering the swap, interest rates increase by 30 basis points. (In other words assume that the LIBOR spot rates that you used in part (A) each increase by 30 basis points or 0.30%). What is the new value of the swap?

D. Repeat part A, but instead assume that the swap is to have 4 quarterly settlement dates. Assume 90 days in each interval. To get your 270-day (9-month) zero coupon/spot rate, you can do a simple average of the reported 6-month and 1-year LIBOR rates

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