Answer-first summary for fast verification
Answer: zero.
## Explanation The value of the swap to the pay-fixed party is **zero** because: 1. **Original swap rate**: 1.5% (3-year swap at initiation) 2. **Current swap rate**: 1.5% (2.5-year swap at first reset) Since both the original fixed rate and the current equilibrium fixed rate are identical (1.5%), the swap has zero value to both parties. **Mathematical reasoning**: - The fixed leg payments are based on the original 1.5% rate - The floating leg payments are based on current market rates - When current market swap rates equal the original fixed rate, the present value of both legs is equal - Therefore, the net value of the swap is zero This represents a situation where market interest rates haven't changed since swap initiation, making the swap neither an asset nor a liability to either party.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
The equilibrium fixed rate for a 3-year fixed-for-floating interest rate swap with semiannual resets was 1.5% on the initiation date. At the first swap reset, the equilibrium fixed rate for the 2.5-year fixed-for-floating interest rate swap is 1.5% and the present value factors are as follows:
| Maturity (Years) | Present Value Factor |
|---|---|
| 0.5 | 0.995025 |
| 1.0 | 0.987167 |
| 1.5 | 0.977995 |
| 2.0 | 0.967118 |
| 2.5 | 0.954654 |
The value of the swap to the pay-fixed party is:
A
negative.
B
zero.
C
positive.