If Pvs are:
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?