6. Two parties enter into a 2-year fixed-for-floating interest rate swap with semiannual payment. The floating rate payments are based on LIBOR as follows. Find swap fixed rate. Maturity (days) Annualized rate Discount factor, Z 180 0.05 0.9756 360 0.06 0.9434 540 0.065 0.9112 720 0.07 0.8772 After 180 days, the LIBOR rates and discount factors are as follows: Maturity (days) Annualized rate Z 180 0.045 0.9780 360 0.050 0.9524 540 0.060 0.9174 What is the market value of the swap to the fixed rate payer if the notional principal is $1 million?
Added by Consuelo H.
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The fixed rate is the rate that makes the present value of fixed payments equal to the present value of floating payments. The present value of floating payments is the sum of the product of each LIBOR rate and its corresponding discount factor. PV_floating = Show more…
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