Question: a) A swap is designed for exchanging annual payments for 4 years on a Notional Principal of $100 Million where the fixed rate payer pays

a) A swap is designed for exchanging annual payments for 4

a) A swap is designed for exchanging annual payments for 4 years on a Notional Principal of $100 Million where the fixed rate payer pays 6% annually on the notional principal in exchange of LIBOR + 100bps on the notional principal. The LIBOR rate is determined at the start of each year. Show the exchange of cashflows in Swap if the LIBOR rates forthe 1st, 2nd, 3rd and 4th years are 5%, 3.5%, 6% and 5.5% respectively. Find the value of the swap to the fixed rate payer

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