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Basic Question 5 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. $7,500 from Counterparty Y to Counterparty X
C. $12,500 from Counterparty X to Counterparty Y
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%
Swap payments are determined in advance but paid in arrears. Given this information, which of the following best describes the first net payment for the swap?
A. $7,500 from Counterparty X to Counterparty Y
B. $7,500 from Counterparty Y to Counterparty X
C. $12,500 from Counterparty X to Counterparty Y
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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.