Answer-first summary for fast verification
Answer: -$60,000.
The correct answer is **B** (-$60,000). The periodic settlement value for the fixed-rate payer is calculated as: \[ \text{Periodic Settlement Value} = (\text{MRR} - \text{Fixed Swap Rate}) \times \text{Notional Amount} \times \text{Period} \] For Year 3, the market reference rate (MRR) is 1.35%. Plugging in the values: \[ (0.0135 - 0.0195) \times \$10,000,000 \times 1 = -\$60,000 \] **Option A** (-$95,000) is incorrect because it averages the first three years' implied forward rates, which is not the correct method for calculating the Year 3 settlement value. **Option C** ($60,000) is incorrect because it represents the settlement value for the floating-rate payer, not the fixed-rate payer.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
A $10 million interest rate swap with annual payments has a fixed swap rate of 1.95%. The implied forward rates for the first three years are 0.50%, 1.15%, and 1.35%, respectively. The periodic settlement value in Year 3 for the fixed-rate payer is expected to be closest to:
A
-$95,000.
B
-$60,000.
C
$60,000.