Problem:
Suppose that a bank has entered into a semiannual interest rate swap, where the bank pays six-month LIBOR and receives 7% per annum (with semiannual compounding) on a notional principal of $100. The swap has a remaining life of 1.25 years. The LIBOR rates with continuous compounding for 3-month, 9-month and 15-month maturities are 10%, 10.4%, and 11.1%, respectively. The 6-month LIBOR rate at the last payment date was 10.3% (with semiannual compounding).
Required:
Question 1: What is the current value of the swap to the bank?
Note: Please explain comprehensively and give step by step solution.