Consider a swap with the following specification: The floating payment is at the six-month rate, and is
Question:
Consider a swap with the following specification:
The floating payment is at the six-month rate, and is set six months before the payment (swaplet) date. The swap expires in five years, and payments occur every six months on a principal of $1. Zero-coupon bond prices are known for all maturities up to 10 years. What is the ‘fair’ level for the fixed rate side of the swap, so that initially the swap has no value?
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