Consider a $100 Fixed Notional, Equity for Libor Swap, Where $- 2.16$

Consider a $100 fixed notional, equity for Libor swap, where the stock price at inception was $35. Two years later, on the stock price was $40. The swap is based on semi-annual payments on both legs, with an ACT/360 convention for the Libor leg. Assume that the number of days in the next period is 183, and the six-month Libor rate was 10%. Of these 92 have elapsed. The 91-day Libor rate for the remaining period is 9% and the stock price is $41. What is the value of the swap from the point of view of the receiver of equity return?

A) $- 2.16$
B) $- 4.66$
C) Zero.
D) $+ 4.66$

Correct Answer:

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