floating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago, is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is 3.50%. Calculate the present value of the fixed and floating legs of the swap, and determine the swap’s net present value from Company A’s perspective. Assume annual compounding for discounting.
Suppose you have a 2.5-year remaining on an interest rate swap with a notional
principal of $10, 000, 000 between Company A and Company B. Company A pays fixed rate
and Company B pays the float rate. Fixed and float payments are exchanged every year and
the last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and the
floating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago,
is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is
3.50%.
Calculate the
net present value from Company A’s perspective. Assume annual compounding for discounting.
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