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Old 06-20-2017, 12:59 PM
textgameno100 textgameno100 is offline
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Default swap interest rate :-?

Example 8
Chloe and Madison enter into a two year interest rate swap. Under the swap, Chloe will pay a fixed rate on a notional amount of 500,000 while receiving payments based on a floating interest rate. The swap rate is 3.5% with annual settlement periods. The floating rate is LIBOR plus 25 basis points. The LIBOR rate for the first year is 3.1% and for the second year it turns out to be 3.7%. Determine the net swap payment that will occur between Chloe and Madison at the end of the first year and at the end of the second year.


Why dose the LIBOR rate for the second year turn out to be 3.7%?
How is it implied by LIBOR rate for the first year 3.1% and swap rate 3.5%?

Can you guys help me, please?
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