A corporation enters into a $35 million notional principal interest rate swap. The swap calls for the corporation to pay a fixed rate and receive a floating rate of LIBOR. The payments will be made every 90 days for one year and will be based on the adjustment factor 90/360. The term structure of LIBOR when the swap is initiated is as follows:
|
Days
|
Rate
|
|
90
|
7.00%
|
|
180
|
7.25
|
|
270
|
7.45
|
|
360
|
7.55
|
a. Determine the fixed rate on the swap.
b. Calculate the first net payment on the swap.
c. Assume that it is now 30 days into the life of the swap. The new term structure of LIBOR is as follows:
|
Days
|
Rate
|
|
60
|
6.80%
|
|
150
|
7.05
|
|
240
|
7.15
|
|
330
|
7.20
|
Calculate the value of the swap.