Based on a notional principal of $30 million and assuming the value of a fixed rate swap and floating rate swap of 0.99 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 says A but IMO should be the opposite (600 paid by the fixed rate payer). Am I wrong?
It says “value of the fixed-rate bond and floating-rate note are 0.99 and 1.01”. If the floating-rate is more valuable than the fixed-rate bond, the one receiving floating gets more than the one receiving fixed. Since payments are netted, the floating-rate payer has to make a payment.