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Basic Question 7 of 8
Quantum Electronics enters into a two-year $20 million notional principal interest rate swap in which it promises to pay a fixed rate and receive payments at LIBOR. The payments are made every six months based on the assumption of 30 days per month and 360 days in a year. The term structure of LIBOR interest rates is given as follows:
What should the fixed rate be?
User Contributed Comments 2
| User | Comment |
|---|---|
| HDave | Make sure to convert annual LIBOR% to 1.5 yrs and 2 yrs rate!! |
| aravinda | 0.0975 is the annualized rate...so to get the fixed payments you got to convert it back.... or just take the 'non-annualized rate" of 0.04875 and multiply it by 20 million |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
describe how swap contracts are similar to but different from a series of forward contracts
contrast the value and price of swaps
CFA® 2025 Level I Curriculum, Volume 5, Module 7.