Practical Interest rate swap question
If you have an interest rate swap (notional $100k) and you are a fixed rate receiver of say 7% interest rate and you pay libor. For simplicity your loan is also on libor. That means your net interest payable is effectively 7%. Assume libor is 8%.
For accounting purposes, you will record the loan interest of libor of 8% and does the value of the swap has to equal the 1% of $100k. I understand the value of swap is the present value of CF (fixed) - CF (floating). But shouldn’t this sum up to 1% im getting from the counterpart so that the effective interest is net 7%.
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