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

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**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

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**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. |