9 A company plans to borrow $20,000,000 in two years. The loan will be for three years and pay a floating interest rate of Libor with interest payments made every quarter. The company expects interest rates to rise in future years and thus is certain to swap the loan into a fixed-rate loan. In order to ensure that it can lock in an attractive rate, the company plans to purchase a payer swaption expiring in two years, with an exercise rate of 5 percent a year. The cost of the swaption is $250,000, and the settlement dates coincide with the interest payment dates for the original loan. Assume Libor at the beginning of the settlement period is 6.5 percent a year.
Calculate the net cash flows on the first settlement date if FS(2,5) is above the exercise rate.
Calculate the net cash flows on the first settlement date if FS(2,5) is below the exercise rate.
此题主要不明白
Assume Libor at the beginning of the settlement period is 6.5 percent a year
这句话，这个6.5%的libor到底是哪个时间点？不是FS（2,5）吗
