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A plain vanilla interest rate swap on a notional principal of $100 million has a remaining life of 10 months. Under the terms of the swap, a six-month LIBOR is exchanged for a fixed rate of 7.7% per annum every 6 months. The average of the bid- offer rate being exchanged for six-month LIBOR in swaps of all maturities is currently 4.1% per annum

A plain vanilla interest rate swap on a notional principal of $100 million has a remaining life of 10 months. Under the terms of the swap, a six-month LIBOR is exchanged for a fixed rate of 7.7% per annum every 6 months. The average of the bid- offer rate being exchanged for six-month LIBOR in swaps of all maturities is currently 4.1% per annum

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A plain vanilla interest rate swap on a notional principal of $100 million has a remaining life of 10 months. Under the terms of the swap, a six-month LIBOR is exchanged for a fixed rate of 7.7% per annum every 6 months. The average of the bid- offer rate being exchanged for six-month LIBOR in swaps of all maturities is currently 4.1% per annum with continuous compounding. The six-month LIBOR rate was 5.4% per annum (compounded semi-annually) two months ago. The value of this swap to the party paying the fixed rate is closest to а. $ -4.83 million b. $ -2.85 million С. $ -4.93 million d. $ -8.18 million
Transcribed Image Text:A plain vanilla interest rate swap on a notional principal of $100 million has a remaining life of 10 months. Under the terms of the swap, a six-month LIBOR is exchanged for a fixed rate of 7.7% per annum every 6 months. The average of the bid- offer rate being exchanged for six-month LIBOR in swaps of all maturities is currently 4.1% per annum with continuous compounding. The six-month LIBOR rate was 5.4% per annum (compounded semi-annually) two months ago. The value of this swap to the party paying the fixed rate is closest to а. $ -4.83 million b. $ -2.85 million С. $ -4.93 million d. $ -8.18 million
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