View the step-by-step solution to:

In an existing (not new) interest rate swap, your company receives 5.

In an existing (not new) interest rate swap, your company receives 5.00% (fixed) per annum and
pays 3month
LIBOR in return on a notional principal of $100 million with payments being exchanged
every 3 months. The swap has a remaining life of 13 months. This implies the next cashflow will be
exchanged in 1 month and the last exchange occurred 2 months ago.
The current LIBOR rates for different maturities are given as follows.
Maturity LIBOR (with continuous
compounding)
1 month 3.00%
4 months 3.25%
7 months 3.50%
10 months 3.75%
13 months 4.00%
On the other hand, the 3month
LIBOR rate 2 months ago (when the last cash exchange occurred) was
4.00% per annum with quarterly compounding.
What is the current value of this swap to your company?
Sign up to view the entire interaction

Top Answer

Hi, I have completed your solution. Kindly check and let me know in case of any clarifications. Hope to work... View the full answer

Futures and Options Markets.docx

Solutions:
Company receives fixed interest per annum = 5%
Pays 3-month LIBOR in return:
Notional principal = $100million
Payment exchanged every 3 months.
Remaining swap life 13 months.
Next change...

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online