If Pvs are:

Ex 1:

1 0.990099

2 0.977876

3 0.965136

Ex 2:

na = 50M

Term 3 year annual

Fixed Rate 3%

Johnson also uses the present value factors in Exhibit 1 to value an interest rate swap that the bank entered into one year ago as the receive-floating party. Selected data for the swap are presented in Exhibit 2. Johnson notes that the current equilibrium two-year fixed swap rate is 1.12%.

the answer is :

The swap has two years remaining until expiration. The sum of the present values for Years 1 and 2 is

n′∑i=1PVt,ti=0.990099+0.977876=1.967975

Given the current equilibrium two-year swap rate of 1.00% and the fixed swap rate at initiation of 3.00%, the swap value per dollar notional is calculated as

*V* = (0.03 – 0.0112)1.967975 = 0.0369

**Why is it multiplying with the PV of Year 1 and Pv of Year 2?**

Thanks