- 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**

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

Correct Answer: A

Counterparty X has agreed to pay (1,000,000)(.06) = $60,000 and Counterparty Y has agreed to pay (1,000,000)(.0475 + .005) = $52,500. The net payment, then, is from X to Y in the amount of 60,000 - 52,500 = $7,500

###
**User Contributed Comments**
0

You need to log in first to add your comment.