Suppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OISswap with two years to maturity where you receive 3% and pay the floating reference ratewith principal 1 million. If the payments are made annually with annual compounding, what is the value of the swap

Suppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OISswap with two years to maturity where you receive 3% and pay the floating reference ratewith principal 1 million. If the payments are made annually with annual compounding, what is the value of the swap

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Question

Suppose the 1-year and 2-year OIS rates are 2% and 4%, respectively. Consider an OIS
swap with two years to maturity where you receive 3% and pay the floating reference rate
with principal 1 million. If the payments are made annually with annual compounding, what is the value of the swap

Expert Solution