OK I was completely lost on this one… Have at it 90 days ago the exchange rate for the Canadian dollar (C$) was 0.83 and the term structure was: 180 days LIBOR - 5.6% CDN - 4.8% 360 days LIBOR - 6% CDN - 5.4% A swap was initiated with payments of 5.3% fixed in C and floating rate payments in USD on a notional principal of USD 1 million with semiannual payments. 90 days have passed, the exchange rate for C$ is $0.84 and the yield curve is: 90 days LIBOR - 5.2% CDN - 4.8% 270 days LIBOR - 5.6% CDN - 5.4% What is the value of the swap to the floating-rate payer? A) -$2,708. B) $10,125. C) $3,472.
ans 10125. Search for 10125 and you’ll see this problem solved multiple times before. USD Float: (1+0.056*180/360)/(1+0.052*90/360) = 1.01480075 CAD Fixed: 4.8 90 0.98814 .0265 0.0261857771 5.4 270 0.96107 1.0265 0.98654493 Total Fixed: 1.012730707 CAD Convert to USD @ spot: 0.83$ / CAD So 1.012730707 / 0.83 Now convert at the new Price * 0.84 = 1.024932282 So Pay Float, receive Fixed: -1.01480075 + 1.024932282 = 0.0101315 For 1 Mill Notional: * 1000000= 10131.53 closest: 10125
I can’t follow your notation but where does the 1.0405 come from in the Schweser explanation? The present value of the USD floating-rate payments is (1.028 / 1.013) = 1.014808 × 1,000,000 = 1,014,807. The present value of the fixed C payments per 1 CDN is (0.0265 / 1.012) + (1.0265 / 1.0405) = 1.012731 and for the whole swap amount, in USD is 1.012731 × 0.84 × (1,000,000 / 0.83) = $1,024,932. −1,014,807 + 1,024,932 = $10,125.
1/(1+.048*90/360)=1/1.012=0.98814 1/(1+.054*270/360) = 1/1.0405=0.96107
This is absolutely brutal. If I get one of these on the exam, no way I get it right