Question

Company A has entered a 3-year SWAP contract under which it pays floating payments every 3 months on the basis of LIBOR + 20 basic points p.a. Simultaneously, company A receives each 3 months fixed payments calculated on the basis of interest rate of 4% p.a. (under quarterly capitalization). Principal of this contract is 1.000.000 PLN. Please value this contract at date 01.01.2017 from the perspective of company A (based on portfolio of bonds). Assume that at 01.01.2017 there is still 1 year remaining till the end of SWAP contract and quotations of LIBOR zero rates (cc) for the periods 3M, 6M, 9M, 12M are the following: 3% p.a, 3,25% p.a., 3,5% p.a. and 4% p.a respectively.