So say you priced an equity swap at 0.0392 based on semiannual payments for one year and the reference index is the dow which starts off at 10,033.27. Now, 90 days have passed and the dow is @ 9,955.14. L90 is 7.1% (D.F = .9826) and L270 = 7.4% (D.F = .9474), the notional principal is 60mm, what is the market value?
I personally got 1.023% for the fixed leg and (0.00778) for the equity. Hence -1,080,600 but the book provides an answer of -1,854,000
I got close to the book (I fucking despise the rounding issues) - $1,850,825.54
I get the same fixed payment as you do (1.02306).
When I divide 9,955.14 by 10,033.27 for the floating side i get 0.99221 (you subtracted this by one, it seems).
After taking the difference between 1.02306 and .99221, i arrive at .03085.
.03085 x 60 mill = $1,850,826.
I just did all the swap EOC’s today and I never got the exact answer. The books seem to keep everything at 3 decimal places throughout calculations, I hope the answer choices on the exam aren’t close together.
Oh, I’m sorry to confuse, I always just come up with, what I consider to be, an absolute value figure and then look at the term structure or movement in the equity index to determine whether it’s the fixed or floating that pays.