Hi, could someone explain to me about question 53 of the CFAI AM mock? The question was asking to calculate the difference for the swap after 100 days. The answer was : ((723.86/757.09) - .9209 - .0499*(.9691+.9209)) * 100,000,000 I believe the first part of the equation (723.86/757.09) - .9209 is the amount for the floating payer, the second part .0499*(.9691+.9209) is the amount of the fix rate payer. Why do we use the 620 day discount rate on the floating side (.9209) instead of the 260 day discount rate (.9691)? I thought the floating rate resets during the next payment and since the swap is paid annually shouldn’t the first reset at a year later which is .9691? Thanks! Dave

(723.86/757.09) - .9209 is the amount for the floating ( in fact, equity return ) payer. The .9209 is there because (723.86/757.09) is not just the return of the index - it includes the principal. .9209 is the PV of 1$ of principal that would be exchanged in 620 days. BTW I think you don’t have to discount the (723.86/757.09) because it is kind of a present value. Does that help?

Hey naze, i believe i understand now. Thanks for your help.