Question: (a) An interest rate swap involves paying 3% per annum fixed and receiving LIBOR every six months on $100 millionSuppose the swap has 9 months

(a) An interest rate swap involves paying 3% per annum fixed and receiving LIBOR every six months on $100 millionSuppose the swap has 9 months remaining (exchanges in 3 and 9 months. LIBOR rate applicable to exchange in 3 months was determined 3 months ago and is 2.9% Forward LIBOR rates for 3-9 month period is 3.15%. OIS zero rates (or, risk free discount rates) for maturities of 3 and 9 months are 1.9% and 2.2% respectively(assume all the rates are quoted in annual terms) For the swap exchanges in 3 months (or 0.25years) and 9 months (0.75 years) obtain, the fixed cash flows floating cash flows, net cash flows, and then using the discount factors obtain the estimated value of the swap.

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