Financial Risk Manager Part 1

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Explanation:

The counterparty is paying floating and receiving fixed, so the swap value is:

V = PV(\text{fixed leg}) - PV(\text{floating leg})

Semiannual fixed coupon:

100 \times \frac{0.036}{2} = 1.8 \text{ million}

There are three remaining fixed payments at $t=0.25, 0.75, 1.25$ :

PV(\text{fixed}) = 1.8(0.9930 + 0.9792 + 0.9656)

PV(\text{fixed}) = 1.8(2.9378) = 5.28804 \text{ million}

The floating payments are:

Cash flows:

100 \times \frac{0.029}{2} = 1.45

100 \times \frac{0.03}{2} = 1.50

100 \times \frac{0.03}{2} = 1.50

Discounting:

PV(\text{float}) = 1.45(0.9930) + 1.50(0.9792) + 1.50(0.9656)

PV(\text{float}) = 1.43985 + 1.46880 + 1.44840 = 4.35705 \text{ million}

V = 5.28804 - 4.35705 = 0.93099 \text{ million}

So the current value of the swap is approximately +$931,000.

Correct answer: B

Explanation:

The counterparty is paying floating and receiving fixed, so the swap value is:

V = PV(\text{fixed leg}) - PV(\text{floating leg})

Semiannual fixed coupon:

100 \times \frac{0.036}{2} = 1.8 \text{ million}

There are three remaining fixed payments at $t=0.25, 0.75, 1.25$ :

PV(\text{fixed}) = 1.8(0.9930 + 0.9792 + 0.9656)

PV(\text{fixed}) = 1.8(2.9378) = 5.28804 \text{ million}

The floating payments are:

Cash flows:

100 \times \frac{0.029}{2} = 1.45

100 \times \frac{0.03}{2} = 1.50

100 \times \frac{0.03}{2} = 1.50

Discounting:

PV(\text{float}) = 1.45(0.9930) + 1.50(0.9792) + 1.50(0.9656)

PV(\text{float}) = 1.43985 + 1.46880 + 1.44840 = 4.35705 \text{ million}

V = 5.28804 - 4.35705 = 0.93099 \text{ million}

So the current value of the swap is approximately +$931,000.

Correct answer: B

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Last updated: April 18, 2026 at 11:32

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