Compute the value of the swap from the counterparty

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Reference no: EM133322739

Case: Suppose that, under the terms of a swap, a swap dealer has agreed to pay 6-month LIBOR and receive 6% per year (with semiannual compounding) on a notional principal of $20 million. The swap has a remaining life of 1.25 years. The appropriate LIBOR discount rates with continuous compounding for 3-month, 9-month, and 15-month maturities are 4%, 5%, and 6%, respectively. The 6-month LIBOR rate at the last payment date was 4.5% per year (with semiannual compounding). Answer the following questions.

Question 1: Value the swap from the dealer's perspective.

Question 2: Compute the value of the swap from the counterparty's perspective, i.e., from the perspective of the dealer's customer who has agreed to pay the dealer 6% fixed in return for 6-month LIBOR.

Reference no: EM133322739

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