## FMP Quiz 3

Aegis.Sameerdutta
Posts: 8
Joined: Mon May 09, 2016 10:39 am

### FMP Quiz 3

In the Solution to this question, factor for 3rd year is .89 in the answer whereas same should be .83 (i.e exp^.06*3), please confirm??

What is the value of following swap to the fixed rate payer using bond methodology? Assume that we are in floating rate reset date.
•\$ 5 million notional, annual interest payment for fixed and floating legs and 3 years maturity
•Spot LIBOR rates: 1 year-4%, 2 years-5%, 3 years-6%
•The fixed rate is 4.5%

a. Gain of \$ 675,000 Incorrect
b. Loss of \$ 53,925 Correct
c. Loss of \$ 65,345 Incorrect
d. Gain of \$ 65,345 Incorrect
.

Calculation of above values for 1st year:
Cash flow: 5,000,000*4.5%= 225,000
Discount rate: exp(-0.04) = 0.96
Value of floating leg is par value as it’s a reset date

Incorrect

Marks for this submission: 0/1.

edupristine
Finance Junkie
Posts: 946
Joined: Wed Apr 09, 2014 6:28 am

### Re: FMP Quiz 3

Hi Aegis
I am attaching a image.
screenshot.1.jpg (46.16 KiB) Viewed 1383 times