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Basic Question 1 of 7
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 am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe how interest rate swaps are priced, and calculate and interpret their no-arbitrage value;
CFA® 2025 Level II Curriculum, Volume 5, Module 31.