Solution-Fixed-rate bond underlying the swap

Fixed-rate bond underlying the swap

Reference no: EM131402354

1. Suppose that the yield curve is flat at 5% per annum with continuous compounding. A swap with a notional principal of $100 million in which 6% is received and six-month LIBOR is paid will last another 15 months. Payments are exchanged every six months. The six-month LIBOR rate at the last reset date (three months ago) was 7%.

(i) What is the value of the fixed-rate bond underlying the swap?

Reference no: EM131402354

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Fixed-rate bond underlying the swap

Reference no: EM131402354

Reference no: EM131402354

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