I have been going over concept checkers and I am getting confused as to what the swap rate is good for (ie. the long 1 - Zn / [Z1+Z2+Z3…]). Some questions use the swap rate as the floating side payment and others just use the past settlement’s floating rate for the float payments. 1. Can someone please tell me in what instances we use that swap rate formula 2. Whether the floating rate payments are always: (1 + deannualized previous settlement’s float rate)*principle

- You use that formula to find out what the Swap Rate (rate fixed pays) at the inception of the swap. 2. Floating is always the previous rate like you said. If you have a semi annual swap and at contract initiation LIBOR 180 is 6%. You would pay 3% 180 days from now. At 180 days from now LIBOR 180 is 5%, you would pay 2.5% 180 days from then (360 days if you count from when the swap was initiated).

- That is used to determine the fixed rate of the swap. 2. If I understand you correctly, Yes. Then you have to discount it to the present.

wow, that is really clear. Thank you very much, I understand them.