# Exam 1 Afternoon #118

Question: Based on a notional principal of \$30 million and assuming the value of a fixed rate swap and floating rate swap of .99 and 1.01 respectively, what is the payment requirement to terminate the swap and which party will make the payment? A. \$600,000 paid by the floating rate payer B. \$1,200,000 paid by the fixed rate payer C. \$600,000 paid by the floating rate payer and \$1,200,000 paid by the fixed rate payer. . . . . . . . . . Answer key says A, but wouldnt there be value to the party receiving floating since its worth more? To me it looks like it should be \$600,000 paid by the fixed rate payer.

I think this is a Pay fixed, receive floating Swap.

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A is correct. Value to the pay fixed = floating - fixed if greater than 0.

Seems like the floating is worth more, so floating gets the payment.

Alright so apparently all the formula memorizing and financial statement adjustments has made me unable to think in basic terms. Thanks for the help

floating does not get the payment, floating makes the payment. It is Pay fixed so -0.99 Receive Floating +1.01 So Fixed gets 0.02 per \$ of Investment Notional = 30 Mill --> so 600 K is received by Fixed and Made by Floating.