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Six semi-annual payments and the principals

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Jade Company enters into a swap contract with Hot Box Corporation with a three-year term contract on a principal of USD200 million. The spot exchange rate is USD2.00 per GBP. Jade pays Hot Box 4 percent per year on GBP100 million and Hot Box pays Jade 6 percent per year on USD200 million at the end of each year for three years. The companies make these interest payments every six months: the swap ends after six semi-annual payments and the principals are handed back after three years.

Using zero-coupon bond prices (maturing every six months) given below, compute the value of this swap.

Zero-Coupon Bond Prices in the United States (Domestic) and the United Kingdom (Foreign)

Time to Maturity                             US Zero-Coupon Bond Prices                      UK Zero-Coupon Bond

(in years) (n)                                     (in dollars) [B(n)]                                          Prices (in pounds) [B(n)e]

0.5                                                         0.99                                                                      0.98

1                                                             0.97                                                                      0.96

1.5                                                         0.95                                                                       0.93

2                                                             0.93                                                                       0.91

2.5                                                         0.91                                                                       0.88

3                                                             0.88                                                                       0.85

Reference no: EM132386238

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