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Basic Question 4 of 7
Assume that you are analyzing a plain vanilla interest rate swap with the following characteristics:
pay fixed rate 6% | pay floating rate LIBOR + 0.5%
receive floating rate LIBOR + 0.5% | receive fixed rate 6%
Swap tenor: 10 years
Notional principal: $1,000,000
LIBOR: 4.75%
B. $47,500
C. $52,500
Counterparty X | Counterparty Y
pay fixed rate 6% | pay floating rate LIBOR + 0.5%
receive floating rate LIBOR + 0.5% | receive fixed rate 6%
Swap tenor: 10 years
Notional principal: $1,000,000
LIBOR: 4.75%
Assume further that payments for this swap are determined in advance but paid in arrears. Which of the following is the fixed rate payment made by Counterparty X?
A. $60,000
B. $47,500
C. $52,500
User Contributed Comments 7
| User | Comment |
|---|---|
| AdriGul | Shoukdn't the two payments be netted and payment be $7,500? |
| stefdunk | 60,000 is the fixed rate that counterparty x has to make every year, before netting. the question asked for the fixed rate, not the netted payment |
| chamad | The outcome is already given. these kind of questions has to be read carefully. Don't be mislead by the plenty of data... |
| aakash1108 | ...nice question. Reminds us to READ CAREFULLY! |
| rfvo | simple!! |
| moneyguy | seemed too easy to be true. On exam day, go with the instinct, answer, move on... |
| johntan1979 | Question is asking FIXED RATE PAYMENT by X, not net payment between the two parties. |
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.