Hi, On the page 242~243 of textbook volume 6, example 4, question B, why below solution is wrong: the side paying fixed: [3.917%/(1+(7.1/4)%)] + [3.917%/(1+(7.4*0.75)%)] = 0.075600 the side paying floating: [3.6%/(1+(7.1/4)%)] + [4.247%/(1+(7.4*0.75)%)] = 0.075609 the value of the swap for the side paying fixed, receiving floaing = 15million * (0.075600 - 0.075609) = -$135. Thanks for help!!! 2009-2-18
I don’t see where you are discounting the notional $1 back to present. You are just taking the payment that period and multiplying by the Present Value factors This is the book way… PV(Fixed PMT) = $0.0392@day180 + $0.0392@day360 + $1@day360 PV(Fixed PMT) = 0.0392*0.9826 + 0.0392*0.9474 + 1*0.9474 PV(Fixed PMT) = 1.0231 PV(Floating PMT) = $0.036@day180 + $1@day360 PV(Floating PMT) = $0.036*0.9826 + $1*0.9826 PV(Floating PMT) = 1.0180 Value = 0.0051*15m = $76.5K