CMA Final · Strategic Financial Management · Swaps
A 2-year swap has annual settlements. Zero-coupon discount factors are year 1: 0.95 and year 2: 0.89. What is the par swap fixed rate (to two decimals)?
The par swap rate is about 5.98%, which is closest to 6.00%. It equals one minus the final discount factor divided by the sum of the discount factors: 0.11 divided by 1.84.
- A6.52%Correct
- B6.00%
- C6.25%
- D5.80%
Explanation
Par swap rate = (1 - DF2) / (DF1 + DF2) = (1 - 0.89) / (0.95 + 0.89) = 0.11 / 1.84 = 5.978%, about 5.98%. None of the listed values equals this, so correct option is closest: 6.00% (option index 1).
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