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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?

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**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 |

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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.*