# Swap Q - you know you can never get enough!

Trent Black is a government fixed-income portfolio manager and he is currently holding \$30 million of fixed-rate, semi-annual pay notes. Black is considering entering into a 2-year \$30 million semi-annual pay interest rate swap as the fixed-rate payer. He must first determine the swap rate. Black notes the following term structure: Days Annual Rate Discount Factor 180 3.25% 0.9840 360 3.35% 0.9676 540 3.60% 0.9488 720 3.85% 0.9285 The annualized fixed rate for this swap is closest to: A. 1.33%. B. 1.87%. C. 3.73%. D. 3.91%. Ignore your answer to Question 115 and assume the annualized fixed rate on the swap is 3.80 percent. The amount of the first fixed payment due on this swap is closest to: A. \$285,000. B. \$570,000. C. \$824,000. D. \$1,140,000.

don’t have my calculator, but i’m guessing C on the first. it’s double B and i think that’s the trick. most swap practice Q’s were quarterly, so you multiply those by 4… but this is semi-annual, so multiply only by 2. second Q should be straight-forward (i think… famous last words)… again, it’s semi-annual not quarterly

C B

C, B

I have c and b also

C B. But a side note, there’s no netting involved on the simple interest rate swap? This B answer is really weird…

Calcs please. This is one area where I just don’t have a f*cking clue.

The correct answers are C, B Next one: It is now 120 days later and Black must determine the value of the swap. The term structure is currently: Days Annual Rate (%) Discount Factor 30 3.21 0.9973 60 3.31 0.9945 180 3.66 0.9820 240 3.69 0.9760 360 4.21 0.9596 420 4.42 0.9510 480 4.69 0.9411 540 4.74 0.9336 600 4.89 0.9246 720 5.00 0.9091 The present value of the remaining fixed payments and the present value of the remaining floating payments (based on \$1 of notional principal), assuming the annualized swap fixed rate is 3.80 percent, are closest to: PV of Fixed PV of Floating A. \$0.98190 \$1.01066 B. \$0.98190 \$0.99970 C. \$0.99768 \$1.01066 D. \$0.99768 \$0.99970

zimzim78 Wrote: ------------------------------------------------------- > Calcs please. This is one area where I just don’t > have a f*cking clue. FIrst one: The semi-annual fixed payment is calculated as (1-0.9285)/(sum from 0.9284 to 0.9285), which, when annualized, is 3.73%. Second one: The amount owed by the fixed payer of the swap would be (0.038 / 2) × \$30,000,000 = \$570,000. I got thrown off by this question since it was not netted.