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    A. $3,630,846
    B. $2,749,326
    C. -$2,749,326
    D. - $3,630,846
    Answer: A
    Explanation:
    Explanation
    The swap can be valued by valuing the two individual components of the swap.
    The fixed rate bond equivalent in the swap is valued at =4/1.05 + 104/(1.06

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    2) = $96,369,154.
    The FRN component will be valued at par as we are at a point where the rate has just been reset, ie $100m.
    The investor is paying the fixed rate, and is therefore short the bond. He/she is receiving LIBOR, and is therefore long the FRN. The value of the swap to the investor therefore is +$100,000,000-$96,369,154 =
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    Detailed explanation:
    An Interest Rate Swap exchanges fixed interest flows for floating rate flows. The floating rate leg is tied to some reference rate, such as LIBOR. The parties exchange net cash flows periodically. Conceptually, an interest rate swap is the combination of a fixed coupon bond and a floating rate note. The party receiving the fixed rate is long the fixed coupon bond and short the FRN, and the party receiving the floating rate is long the FRN and short the fixed coupon bond.
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