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Answer: -$287,300
The swap has a fixed rate of 2.2121% with semi-annual compounding. The floating rate (LIBOR) was set 0.25 years ago at 3.0% with semi-annual compounding, but LIBOR has since dropped. This means the financial institution is paying a higher fixed rate (2.2121%) than the current floating rate, making the swap value negative to the institution. The exact calculation would involve discounting the net cash flows, but given the options, -$287,300 is the most reasonable estimate for the present value loss.
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2.2121% with semi-annual compounding. The LIBOR rate applicable to the exchange in 0.25 years was determined 0.25 years ago; suppose it was 3.0% with semi-annual compounding (LIBOR has dropped in the meantime). Which is nearest to the present value of the swap to the financial institution?
A
-$1.550 million
B
-$287,300
C
+1.883 million
D
+2.940 million
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