Problem 2 (20 points) A company entered into a swap agreement where it pays six-month LIBOR and receives 7.5% (semi-annual payment) on a principal of $100 million. The remaining life of the swap is 15 months. The continuously compounded LIBOR rates for 3-months, 9-months and 15-months are 9%, 9.5%, and 10% respectively. The six months LIBOR on the last payment date was 9.25% (semi-annual payment). Find the value of the swap as the difference between the value of a fixed-rate bond and the value of the floating-rate bond. Swap Valuation using Bonds LIBOR Rates Fixed Bond Floating Discount Bond Factor Time PV of Fixed Bond PV of Floating Bond 0.25 0.75 1.25 Problem 2 (20 points) A company entered into a swap agreement where it pays six-month LIBOR and receives 7.5% (semi-annual payment) on a principal of $100 million. The remaining life of the swap is 15 months. The continuously compounded LIBOR rates for 3-months, 9-months and 15-months are 9%, 9.5%, and 10% respectively. The six months LIBOR on the last payment date was 9.25% (semi-annual payment). Find the value of the swap as the difference between the value of a fixed-rate bond and the value of the floating-rate bond. Swap Valuation using Bonds LIBOR Rates Fixed Bond Floating Discount Bond Factor Time PV of Fixed Bond PV of Floating Bond 0.25 0.75 1.25