An Interest Rate Swap Has Three Years of Remaining Life

question 5

Multiple Choice

An interest rate swap has three years of remaining life.Payments are exchanged annually.Interest at 3% is paid and 12-month LIBOR is received.A exchange of payments has just taken place.The one-year,two-year and three-year LIBOR/swap zero rates are 2%,3% and 4%.All rates an annually compounded.What is the value of the swap as a percentage of the principal when OIS and LIBOR rates are the same

• A) 0.00
• B) 2.66
• C) 2.06
• D) 1.06

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