In an interest rate swap, a financial institution pays 10% per annum and receives three months LIBOR in return on a notional principal of $100 million with payments being exchanged every three months.
The swap has a remaining life of 14 months.
The average of the bid and offer fixed rates currently being swapped for three-month LIBOR is 12% per annum for all maturities.
The three-month LIBOR rate one month ago was 11.8% per annum. All rates are compounded quarterly.
What is the value of the swap? Use LIBOR discounting.