CFA Level I · CFA Level I Exam · Pricing and Valuation of Interest Rate and Other Swaps
A one-year pay-fixed swap with annual settlement has a notional of USD 10 million and a fixed rate of 3.00%. Current one-year zero-coupon discount factor is 0.9615 (for 4.00%), and the swap's remaining payment is one date from now. The floating payment, set at the start at 4.00%, is still to be paid. The value of the swap to the fixed payer is closest to:
The swap is worth about USD 96,150 to the fixed payer. The net settlement is USD 100,000 (floating 4% less fixed 3% on USD 10 million), and discounting it one year at the 0.9615 factor gives USD 96,150.
- AUSD 0.0
- BUSD 96,150Correct
- CUSD 100,000
Explanation
Floating payment = 4.00% x 10,000,000 = 400,000; fixed payment = 300,000. Net receipt = 100,000 at the end of one year. Discounted: 100,000 x 0.9615 = 96,150. Option C omits discounting.
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