Insurance company, IHI, is part of a swap agreement with investment bank Lachlin Bank on a notional principal of $60 million. IHI has agreed to pay Lachlin Bank the six month BBSW rate and receives 11% pa, convertible half-yearly. 

If the swap has a residual life of 18 months, and the next interest payment is due in six months.

Calculate the value of the swap for Lachlin, given BBSW rates (compounding continuously) for the corresponding 6, 12 and 18 month maturities are 12.83% pa, 13.25% pa, 13.32% pa and the half year BBSW rate on the next payment is known to be 11.4% pa compounding half-yearly? Give your answer in millions of dollars to 2 decimal places?

Answer rating: 100% (QA)

To calculate the value of the swap for Lachlin we need to calculate the present value of the fixed a... View the full answer