- CFA Exams
- CFA Level I Exam
- Study Session 14. Derivatives
- Reading 37. Pricing and Valuation of Forward Commitments
- Subject 8. Interest Rate Swap Contracts

###
**CFA Practice Question**

Consider a one-year swap with quarterly payments on days 90, 180, 270, and 360. The underlying is 90-day LIBOR. The annualized LIBOR spot rates today are:
L

_{0}(90) = 0.0345, L_{0}(180) = 0.0358, L_{0}(270) = 0.0370, L_{0}(360) = 0.0375.What should be the fixed rate of this swap?

A. 3.62%

B. 3.68%

C. 3.54%

**Explanation:**The present value factors are obtained as follows:

PV

_{0}(90) = 1 / (1 + 0.0345 x 90/360) = 0.9914

PV

_{0}(180) = 1 / (1 + 0.0358 x 180/360) = 0.9824

PV

_{0}(270) = 1 / (1 + 0.0370 x 270/360) = 0.9730

PV

_{0}(360) = 1 / (1 + 0.0375 x 360/360) = 0.9639

R = (360/90) x (1 - 0.9639) / (0.9914 + 0.9824 + 0.9730 + 0.9639) = 0.0368, or 3.68%

###
**User Contributed Comments**
0

You need to log in first to add your comment.