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Explanation:
Fixed-rate coupon = 150,000,000 × 0.055 = `$8`,250,000
B_{\text{fixed}} = 8.25 / 1.0575^1 + 158.25 / 1.0625^2 = 7.8014 + 140.1799 = \`147`,981,331 $
B_{\text{floating}} = \`150`,000,000 $
V_{\text{swap}} = \`150,000,000 - \147`,981,331 = \`2`,018,669 $
(Book 3, Module 46.2, LO 46.g)
Question 81
A bank entered into a 5-year `$150` million annual-pay interest rate swap three years ago as the fixed-rate payer at 5.5%. The relevant discount rates (annually compounded) for 1-year and 2-year obligations are currently 5.75% and 6.25%, respectively. A payment was just made. The value of the swap is closest to:
A
–`$2`,020,000.
B
`$2`,020,000.
C
`$6`,450,000.
D
–`$6`,450,000.
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