In an interest rate swap a financial institution pays 10, Ask an Expert

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in an interest rate swap, a financial institution pays 10% per annum and receives three months LIBOR in return on a notional principal of $100 million with payments being exchanged every three months. The swap has a remaining life of 14 months.

The average of the bid and offer fixed rates currently being swapped for three-month LIBOR is 12% per annum for all maturities.

The three-month LIBOR rate one month ago was 11.8% per annum. All rates are compounded quarterly.

What is the value of the swap? Use LIBOR discounting.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92767023

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