The question says that the bank entered into a 3 year fixed for floating interest rate swap 1 year ago… So when you calculate the value of the swap after one year, don’t you use the sum of the PV factors for years 2 and 3?

I thought you would calculate the value like this: V = (0.03 - 0.01) (1.943012) ($50,000,000) = $1,943,012

The sum of the PV factors I used where for years 2 and 3 (.977876 + .965136).

However, the book says the answer is : V = (0.03 - 0.01)(1.967975)($50,000,000) = $1,967,975.

They used the sum of the PV factors for years 1 and 2 (.990099 + .977876).

I don’t understand why you would use the year 1 instead of year 3? My thinking is that one year has already gone by so you wouldn’t use that PV factor, you would use the remaining 2 years PV factors. Can anyone help?