Question 2: contains two parts, (a) and (b). Assume the term structure of interest rates is flat at 5% 
per annum with continuous compounding.
Some time ago a financial institution entered into a 5‐year swap with a principal of $100 million in which 
every year it pays 12‐month LIBOR and receives 6%. The swap now has two years eight months remaining. Four 
months ago, 12‐month LIBOR was 4% (with annual compounding). 
Question 2 (a): What is the value of the swap today?
Question 2 (b): What is the financial institution’s credit exposure on the swap