current value of the swap

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


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?


Because you’re expecting to get that payoff in one year and again in two years.

Thank you for the reply.

So would it be correct to say that the difference of the rates are discounted by 2 years (year 1 and year 2)to come back to year 0. The question says 1 year ago shouldnt he be discounting year to get to year 1. (adding year 2 and year 3)?

So the bank entered into the swap one year ago. So what? What’s past is past.

Today, the swap has two years left: one payment in one year and another payment in two years. What else matters?