- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 7. Pricing and Valuation of Interest Rates and Other Swaps
- Subject 1. Pricing and Valuation of Swap Contracts
CFA Practice Question
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
Correct Answer: A
(1,000,000)(.06) = 60,000
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. |