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An interest rate swap where the annual fixed rate is 6.00% has a remaining life of...

An interest rate swap where the annual fixed rate is 6.00% has a remaining life of one year. Both floating and fixed rates are paid every six months. The floating payments are indexed on the six-month LIBOR rate. The six-month LIBOR rate observed today is 7% with semi-annual compounding. Today’s LIBOR rates for 6-month and 12-month deposits are 7.5% and 8.0%, respectively. These two rates are annual and continuously compounded.

  1. a) Calculate the forward LIBOR rate for the period between six and twelve months assuming semi-annual compounding.

  2. b) If the swap has a principal value of $50,000,000, what is the value today of the swap to the party receiving the floating rate of interest?

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