CFAI Derivative Qs 51

Mbali Ndlovu, a trader on Mafadi’s derivatives desk, works closely with Fourie to implement solutions for his clients. Fourie asks Ndlovu to review and calculate the value of a five-year ZAR20,000,000 swap into which Global Bullion entered two years ago. It is a receive-fixed, Libor-based interest rate swap with annual resets (30/360 day count). The fixed rate in the swap contract established two years ago was 3%. Exhibit 1 estimates the present value factors.



Maturity (years) Present Value Factor 1 0.9802 2 0.9560 3 0.9311

My answer 342,400/- regarding current value of the swap. CFAI says its 344,076/-.

If you rounded the new fixed rate you will get the same answer as CFAI, if you didn’t you will get 342,400 , it is a rounding issue

Thanks…m choosing the closest answer…still have not figured out how many decimal places should be used. M using 6 in my calculator.

I am using 6 too, specially in calculating sum of pvs, they tend to avoid rounding choices in their questions (in TTs too)