Citibank entered into an interest rate swap to pay six-month LIBOR and receive 5.5% per...
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Citibank entered into an interest rate swap to pay six-month LIBOR and receive 5.5% per annum (semi-annually compounded) on a principal of $15 million for two years. Payments are made every six months. At the end of 3 months, Citibank wants to value this swap. Assuming the discounting interest rates (continuously compounded) are 2.5% per annum for all maturities. The 6-month LBOR rate was 5% per annum (semi-annually compounded) when the swap was entered. a) When Citibank entered the swap contract, what was the value of this swap to Citibank? (1 mark) b) At the end of 3 months, what is the value of this swap to Citibank? ( 4 marks)
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