Hi,
I have a question in regards question 13 (Page 292 - CFA 2016 Cur)
A one-year swap with quarterly payments pays a fixed rate and receives a floating rate. The term structure at the beginning of the swap is
L0(90) = 0.0252
L0(180) = 0.0305
L0(270) = 0.0373
L0(360) = 0.0406
In order to mitigate the credit risk of the parties engaged in the swap, the swap will be marked to market in 90 days. Suppose it is now 90 days later and the swap is being marked to market. The new term structure is
L90(90) = 0.0539
L90(180) = 0.0608
L90(270) = 0.0653
Calculate the market value of the swap per $1 notional principal and indicate which party pays which.
I was able to calculate the fixed rate and discounted the value using 90 days rate. From my understanding, the floating note is reset to notional principal (1$ on every reset date). My question is should the notional principal also include the floating coupon (Notional Principal + floating coupon based on 90 days rate)?
Notional Principal ($1) + Floating Coupon (0.0252*90/360) = 1.0063