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  3. . consider the following interest-rate swap: • t

. Consider the following interest-rate swap: • the swap starts today, January 1 of year 1 (swap settlement date) • the...

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Finance

. Consider the following interest-rateswap:

•the swap starts today, January 1 of year 1 (swap settlementdate)

•the floating-rate payments are made quarterly based on actual /360

•the reference rate is 3-month LIBOR

•the swap rate is 6%

•the notional amount of the swap is $40 million

•the term of the swap is three years

(a) Suppose that today’s 3-month LIBOR is 5.7%. Whatwill the fixed-rate payer for this interest rate swap receive onMarch 31 of year 1 (assuming that year 1 is not a leapyear)?

(b) What will the fixed-rate payer for this interestrate swap pay on March 31 of year 1 (assuming that year 1 is not aleap year)?

Answer & Explanation Solved by verified expert
4.5 Ratings (930 Votes)
Interest rate swap by definition is a contract where two parties agrees to exchange the cash flows In the most basic IRS interest rate swap two parties exchange the fixed interest obligation against the floating cash flows The basic reason for    See Answer
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