Consider the following market data:
Maturity in years LIBOR CC Rates
0.5 4%
1 4.50%
1.5 4.80%
a. Compute the 1 ½ - year LIBOR swap rate.
b. Compute the bootstrapped 2-year continuously compounded LIBOR rate.
Now suppose that a 1 ½ - year swap is already in place and was incepted 3 months earlier. The party with the swap pays a 3% interest per annum and receives LIBOR every six months, i.e. the swap reset period is 6 months. The notional principal is $100 million. Three months ago, the LIBOR was 2.9%. Forward LIBOR for 3-9 month period and 9-15 month period is 3.429% and 3.734%, respectively.
Assuming that the Overnight Index Swap rates for maturities of 3, 9, and 15 months are 2.8%, 3.2%, and 3.4%, compute the value of the swap.