Explanation:
The fixed payments made by Cooper are (0.07 / 2) \times \`2,000,000 = \. The present value of the fixed payments
The value of the floating rate payments received by Cooper at the payment date is the value of the notional principal, or `$2`,000,000. Recall that a swap payment has just been made.
The value of the swap to Cooper is (\`2,000,000 - \1`,986,826) = \`13`,174$.
(Book 3, Module 46.2, LO 46.g)
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Question 9
Cooper Industries (Cooper) is the pay-fixed counterparty in an interest rate swap. The swap is based on a notional value of $2,000,000, and Cooper receives a floating rate based on the 6-month SOFR. Cooper pays a fixed rate of 7% semiannually. A swap payment has just been made. The swap has a remaining life of 18 months, with pay dates at 6, 12, and 18 months. Spot SOFR rates are shown in the table below.
| 6-month SOFR | 6.5% |
|---|---|
| 12-month SOFR | 6.8% |
| 18-month SOFR | 7.5% |
| 24-month SOFR | 7.7% |
The value of the swap to Cooper is closest to:
A
$0.
B
$10,000.
C
$13,000.
D
$16,000.
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