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5 II. Your firm is paying 3-month LIBDR and receiving the fixed rate of 3.641% {annualized} on a notional principal of liltl million. It is Dec. l5...

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SW: 5 II.T. Your firm is paying 3-month LIBDR and receiving the fixed rate of 3.641% {annualized} on a
notional principal of liltlfl million. It is Dec. l5 and Spot 3-month [.[BCI'R today is 3B0 percent. The
swap payment dates are quarterly and the next two coincide wifli the Eurodollar maturities in March and June. {For simplicity, assume each period is U4 of a year. This is not a question about day count
conventions.) Here are the Eurodollar futures prices for the next two expirations:
March 9&50
June 95.15
a. What are the values for 3-month LIEGR fl-iat one could look in by trading futiues at fliese prices“?I 11. Suppose 3-month LIEDR on the next two payment dates turns out to be equal to fire values you
calculated in part a. What will be the dollar amounts of the mire; swap payments you will have to malre
or receive based on the current spot rate and those two forward rates? Each actual cash payment will he
made at the end of the relevant period, that is, three months after the repricing date on which the interest
rate is set. [Treat the payment periods as lid of a year; the question is not about day-count conventions.)
Assume your obligation and that of your counterparty are netted, and only the difference between them is
paid by the countetpaity with the larger obligation. c. Suppose you have bought an interest rate cap contract instead of a swap, with a strike level of3.Efl%.
What will be the dollar values of the payments on the cap you will receive based on each of those rates?
{Recall flat with a cap, there will be no payment on the first rcpricing date in March.) d. 1|What is the market value of the swap contract in pait b., assuming these are the only payments.

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