A Semi-Annual Pay Interest Rate Swap Where the Fixed Rate

question 19

Multiple Choice

A semi-annual pay interest rate swap where the fixed rate is 5.00% (with semi-annual compounding) has a remaining life of nine months.The six-month LIBOR rate observed three months ago was 4.85% with semi-annual compounding.Today's three and nine month LIBOR rates are 5.3% and 5.8% (continuously compounded) respectively.From this it can be calculated that the forward LIBOR rate for the period between three- and nine-months is 6.14% with semi-annual compounding.If the swap has a principal value of $15,000,000,what is the value of the swap to the party receiving a fixed rate of interest?

• A)$74,250
• B)-$70,760
• C)-$11,250
• D)$103,790

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