Question: An interest rate swap is worth close to zero when it is first initiated. After it has been in existence for some time its value

An interest rate swap is worth close to zero when it is first initiated. After it has been in existence for some time its value may be positive or negative. Explain this statement from the perspective that a swap can be viewed as the difference between two bonds. 1. (a) Suppose a financial institution has agreed to pay 6-month LIBOR andreceive 4% per annum (with semiannual compounding) on a notional principal of $100 million. The swap has a remaining life of 9 months. The LIBOR rates with continuous compounding for 3- month and 9-month maturities are 3.5% and 4.25% respectively. The 6-month LIBOR rate at the last payment date was 4.2% (with semiannual compounding). What is the value of this swap to the financial institution? (b)

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