Hello - I am a bit confused and I've been stuck on this all day - it has to do with valuing swaps using the Zero Coupon Valuation method, I know how to use the Zero Coupon Valuation method on bonds but I have no clue on how it works with swaps? I know you produce one cash flow at maturity date which is found using a result of finding the zero coupon rate. Anways here are the two swaps:

Swap A: ALTECO pays 3% p.a. on a principal of US$450m and receives 4% p.a. on a principal of 250 million. Cash flows are exchanged semi-annually and it is exactly six months to the next swap payment date. The swap has eighteen months to run.

Swap B: ALTECO pays six-month sterling LIBOR on a principal of 350 million and receives six-month US dollar LIBOR on a principal of US$500 million. Cash flows are exchanged semi-annually and it is exactly six months to the next swap payment date. The swap has three years to run.

The current exchange rate for sterling is 1 = US$1.60 and the LIBOR/swap term structures in the UK and US are as follows (all rates continuously compounded):

Term UK US

(Years) (% per annum) (% per annum)

0.5 2.0 1.0

1.0 2.5 1.5

1.5 3.0 2.0

2.0 3.5 2.5

2.5 4.0 3.0

3.0 4.5 3.5