Two banks enter into a 1-year plain vanilla interest-rate swap with the following terms:
-
Notional principal is $500,000,000.
-
The fixed component of the swap is 7%.
-
The floating component of the swap is LIBOR + 200bps where LIBOR equals 5%.
If the current risk-free rate is 4 percent, the value for this swap at inception is closest to:
A. $500,000,000.
B. $8,750,000.
C. $35,000,000.
D. $0.
|
