Will pay the fixed rate to firm A. The terms of the swap are as follows:
7/1/2011, and 1/1/2012. On each coupon date, A pays to B an amount determined by the 6-month LIBOR rate 6 months in advance. Thus, on 7/1/2011, A would pay to B an amount based upon the actual 6-month LIBOR rate reported on 1/1/2011. On each coupon date, B pays to A a fixed payment based on the rate required to price the fixed leg of the swap at par value on 1/1/2010. Now we jump ahead to January 2, 2012. The actual LIBOR rates for reported in the Table below.
Date Maturity in Years 0.5 1.0 1.5 2.0
1/1/2010 2.00 2.25 2.50 2.75
7/1/2010 2.10 2.30 2.70 3.00
1/1/2011 2.40 2.50 2.70 2.60
7/1/2011 2.50 2.50 2.50 2.50
1/1/2012 2.30 2.20 2.15 2.10
a) On date 1/1/2010, what is the amount of the fixed payment that B anticipates paying to A on each coming coupon date?
b) On date 1/1/2010, what is the amount of the floating payments that A anticipates paying to B on each coming coupon date?
c) Verify that on 1/1/200 the present discounted value of the net coupon payments is zero.
d) Assuming that both A and B held this swap to maturity, what were the actual payments that A and B made at each coupon date?
