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What is the loss to the hedge fund

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Question - A hedge fund is currently engaged in a plain vanilla interest rate swap with a company named NeverDown. Under the terms of the swap, the hedge fund receives six-month LIBOR and pay 8 percent per annum on a principle of $100 million for five years. Payments are made every 6 months.  Assume that the interest rates start to soar after two years and NeverDown defaults on the sixth payment date when the LIBOR rate is 10 percent for all maturities (with semi-annual compounding). The 6-months LIBOR rate 6-months ago is 9.5 percent. What is the loss to the hedge fund?

Reference no: EM132997826

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