CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

Assume that you are analyzing a plain vanilla interest rate swap with the following characteristics:

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.
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