2. Assume that you are a swap dealer and have just acted as a counterparty in an interest rate swap. The notional principal for the swap was $8 million and you are now obligated to make 6 annual payments of 4% interest. The floating rate that you will receive annually is LIBOR + 1%. The LIBOR is expected to be 2.6% for year 1, 2.8% for year 2, and 3.5% thereafter. Compute the net present value of your swap agreement at a discount rate of 6%?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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2. Assume that you are a swap dealer and have just acted as a counterparty in an interest rate swap. The
notional principal for the swap was $8 million and you are now obligated to make 6 annual payments of 4%
interest. The floating rate that you will receive annually is LIBOR + 1%. The LIBOR is expected to be 2.6%
for year 1, 2.8% for year 2, and 3.5% thereafter. Compute the net present value of your swap agreement at
a discount rate of 6%?
Transcribed Image Text:2. Assume that you are a swap dealer and have just acted as a counterparty in an interest rate swap. The notional principal for the swap was $8 million and you are now obligated to make 6 annual payments of 4% interest. The floating rate that you will receive annually is LIBOR + 1%. The LIBOR is expected to be 2.6% for year 1, 2.8% for year 2, and 3.5% thereafter. Compute the net present value of your swap agreement at a discount rate of 6%?
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