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Swap Cancelation: You purchased an interest rate swap of which notional principal is $100,000,000 that matures in 10 years (Annual settlement, annuity in arrears) 3 years ago. Fixed rate was set to be 4% and the floating rate was set to be LIBOR. Today, the benchmark 1-year LIBOR is 2.5% (use 2.5% instead of 2.493%) and the relevant 7-year yield is 2%. If you want to exit this swap, you have to convince the swap seller (the other party) by offering some payment. What is the minimum amount of such payment you need to offer to exit this swap? (Ignore swap dealers. In reality, it will be very hard to exit the swap because the ones who want to exit the swap must be on the losing side. The ones on the winning side are unlikely to let the others go. You may use the following annuity formula). US Dollar LIBOR interest rates 2018, all maturities Maturity / rate 2018 first last high low average USD LIBOR - overnight 1.438 % 1.705 % 1.706 % 1.436 % 1.540 % USD LIBOR - 1 week 1.480 % 1.755 % 1.755 % 1.464 % 1.583 % USD LIBOR -2 weeks USD LIBOR -1 month 1.562 % 1.622 % 1.697 % 1.918 % 1.929 % 1.553 % 1.728 % USD LIBOR -2 months 2.092 % 2.092 % 1.620 % 1.846 % USD LIBOR -3 months 2.355 % 2.369 % 1.696 % 2.053 % USD LIBOR - 4 months USD LIBOR -5 months USD LIBOR - 6 months 1.839 % 2.517 % 2.524 % 1.839 % 2.228 % USD LIBOR -7 months USD LIBOR - 8 months USD LIBOR -9 months USD LIBOR - 10 months USD LIBOR - 11 months USD LIBOR - 12 months 2.109 % 2.768 % 2.780 % 2.109 % 2.493 %

Swap Cancelation: You purchased an interest rate swap of which notional principal is $100,000,000 that matures in 10 years (Annual settlement, annuity in arrears) 3 years ago. Fixed rate was set to be 4% and the floating rate was set to be LIBOR. Today, the benchmark 1-year LIBOR is 2.5% (use 2.5% instead of 2.493%) and the relevant 7-year yield is 2%. If you want to exit this swap, you have to convince the swap seller (the other party) by offering some payment. What is the minimum amount of such payment you need to offer to exit this swap? (Ignore swap dealers. In reality, it will be very hard to exit the swap because the ones who want to exit the swap must be on the losing side. The ones on the winning side are unlikely to let the others go. You may use the following annuity formula). US Dollar LIBOR interest rates 2018, all maturities Maturity / rate 2018 first last high low average USD LIBOR - overnight 1.438 % 1.705 % 1.706 % 1.436 % 1.540 % USD LIBOR - 1 week 1.480 % 1.755 % 1.755 % 1.464 % 1.583 % USD LIBOR -2 weeks USD LIBOR -1 month 1.562 % 1.622 % 1.697 % 1.918 % 1.929 % 1.553 % 1.728 % USD LIBOR -2 months 2.092 % 2.092 % 1.620 % 1.846 % USD LIBOR -3 months 2.355 % 2.369 % 1.696 % 2.053 % USD LIBOR - 4 months USD LIBOR -5 months USD LIBOR - 6 months 1.839 % 2.517 % 2.524 % 1.839 % 2.228 % USD LIBOR -7 months USD LIBOR - 8 months USD LIBOR -9 months USD LIBOR - 10 months USD LIBOR - 11 months USD LIBOR - 12 months 2.109 % 2.768 % 2.780 % 2.109 % 2.493 %

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
Problem 1PS
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Swap Cancellation (pricing)

Swap Cancelation: You purchased an interest rate swap of which notional principal is $100,000,000 that matures in 10 years (Annual settlement, annuity in arrears) 3 years ago. Fixed rate was set to be 4% and the floating rate was set to be LIBOR. Today, the benchmark 1-year LIBOR is 2.5% (use 2.5% instead of 2.493%) and the relevant 7-year yield is 2%. If you want to exit this swap, you have to convince the swap seller (the other party) by offering some payment. What is the minimum amount of such payment you need to offer to exit this swap? (Ignore swap dealers. In reality, it will be very hard to exit the swap because the ones who want to exit the swap must be on the losing side. The ones on the winning side are unlikely to let the others go. You may use the following annuity formula). US Dollar LIBOR interest rates 2018, all maturities Maturity / rate 2018 first last high low average USD LIBOR - overnight 1.438 % 1.705 % 1.706 % 1.436 % 1.540 % USD LIBOR - 1 week 1.480 % 1.755 % 1.755 % 1.464 % 1.583 % USD LIBOR -2 weeks USD LIBOR -1 month 1.562 % 1.622 % 1.697 % 1.918 % 1.929 % 1.553 % 1.728 % USD LIBOR -2 months 2.092 % 2.092 % 1.620 % 1.846 % USD LIBOR -3 months 2.355 % 2.369 % 1.696 % 2.053 % USD LIBOR - 4 months USD LIBOR -5 months USD LIBOR - 6 months 1.839 % 2.517 % 2.524 % 1.839 % 2.228 % USD LIBOR -7 months USD LIBOR - 8 months USD LIBOR -9 months USD LIBOR - 10 months USD LIBOR - 11 months USD LIBOR - 12 months 2.109 % 2.768 % 2.780 % 2.109 % 2.493 %
Transcribed Image Text:Swap Cancelation: You purchased an interest rate swap of which notional principal is $100,000,000 that matures in 10 years (Annual settlement, annuity in arrears) 3 years ago. Fixed rate was set to be 4% and the floating rate was set to be LIBOR. Today, the benchmark 1-year LIBOR is 2.5% (use 2.5% instead of 2.493%) and the relevant 7-year yield is 2%. If you want to exit this swap, you have to convince the swap seller (the other party) by offering some payment. What is the minimum amount of such payment you need to offer to exit this swap? (Ignore swap dealers. In reality, it will be very hard to exit the swap because the ones who want to exit the swap must be on the losing side. The ones on the winning side are unlikely to let the others go. You may use the following annuity formula). US Dollar LIBOR interest rates 2018, all maturities Maturity / rate 2018 first last high low average USD LIBOR - overnight 1.438 % 1.705 % 1.706 % 1.436 % 1.540 % USD LIBOR - 1 week 1.480 % 1.755 % 1.755 % 1.464 % 1.583 % USD LIBOR -2 weeks USD LIBOR -1 month 1.562 % 1.622 % 1.697 % 1.918 % 1.929 % 1.553 % 1.728 % USD LIBOR -2 months 2.092 % 2.092 % 1.620 % 1.846 % USD LIBOR -3 months 2.355 % 2.369 % 1.696 % 2.053 % USD LIBOR - 4 months USD LIBOR -5 months USD LIBOR - 6 months 1.839 % 2.517 % 2.524 % 1.839 % 2.228 % USD LIBOR -7 months USD LIBOR - 8 months USD LIBOR -9 months USD LIBOR - 10 months USD LIBOR - 11 months USD LIBOR - 12 months 2.109 % 2.768 % 2.780 % 2.109 % 2.493 %
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