Answer: + $931,000

The counterparty is **paying floating and receiving fixed**, so the swap value is: \[ V = PV(\text{fixed leg}) - PV(\text{floating leg}) \] ### 1) Fixed leg Semiannual fixed coupon: \[ 100 \times \frac{0.036}{2} = 1.8 \text{ million} \] There are three remaining fixed payments at \(t=0.25, 0.75, 1.25\): \[ PV(\text{fixed}) = 1.8(0.9930 + 0.9792 + 0.9656) \] \[ PV(\text{fixed}) = 1.8(2.9378) = 5.28804 \text{ million} \] ### 2) Floating leg The floating payments are: - At \(t=0.25\): based on the known LIBOR of 2.90% - At \(t=0.75\) and \(t=1.25\): based on the 3.00% forward rates Cash flows: \[ 100 \times \frac{0.029}{2} = 1.45 \] \[ 100 \times \frac{0.03}{2} = 1.50 \] \[ 100 \times \frac{0.03}{2} = 1.50 \] Discounting: \[ PV(\text{float}) = 1.45(0.9930) + 1.50(0.9792) + 1.50(0.9656) \] \[ PV(\text{float}) = 1.43985 + 1.46880 + 1.44840 = 4.35705 \text{ million} \] ### 3) Swap value \[ V = 5.28804 - 4.35705 = 0.93099 \text{ million} \] So the current value of the swap is approximately **+$931,000**. **Correct answer: B**

Author: Manit Arora