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CFA Level I · CFA Level I Exam · Forward Commitment and Contingent Claim Features and Instruments

A one-year swap has quarterly settlements with a fixed rate of 3.60% per year on a notional of USD 20 million. The floating rate set at the start of the period is 3.00% per year. The net payment at the first settlement, assuming 90/360 day count, is closest to:

The fixed-rate payer pays about USD 30,000. Fixed interest for the quarter is USD 180,000 and floating interest is USD 150,000, so the net is USD 30,000 owed by the fixed payer. The USD 120,000 figure ignores the quarterly period.

  1. AUSD 30,000 paid by the fixed-rate payerCorrect
  2. BUSD 30,000 received by the fixed-rate payer
  3. CUSD 120,000 paid by the fixed-rate payer

Explanation

Fixed payment = 20,000,000 × 3.60% × 0.25 = 180,000. Floating = 20,000,000 × 3.00% × 0.25 = 150,000. The fixed payer owes the net 30,000. Using the annual difference of 0.60% without adjusting for the quarter gives 120,000, which is wrong.

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