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In the existing interest rate swap, the company receives 5.00% (fixed) per annum and pays three month LIBOR in return on the theoretical principal of $100 million with payments being swapped every three months. Swap has the enduring life of 13 months. This involves the next cashflow will be swapped in one month and last exchange happened two months ago. The present LIBOR rates for various maturities are listed below.

Maturity LIBOR (with continuouscompounding)

1 month 3.00%
4 months 3.25%
7 months 3.50%
10 months 3.75%
13 months 4.00%

On other hand, the three month LIBOR rate two months ago (when last cash exchange happened) was 4.00% per annum with quarterly compounding. Determine the present value of this swap to your company?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914108

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