Interest Rate Swap Valuation
Three years ago, you entered into a EUR 150,000,000, eight-year, receive-fixed, market reference rate (MRR)-based interest rate swap with annual resets at a rate of 1.5%. The present value factor table is below.
| Maturity (Years) | Present Value Factors |
|-------------------|-----------------------|
| 1 | 0.9908 |
| 2 | 0.9801 |
| 3 | 0.9675 |
| 4 | 0.9532 |
| 5 | 0.9368 |
Currently, the equilibrium fixed swap rate is 1.40%. The value for the party receiving the fixed rate will be closest to:
That's it!
Use the equation
$$\displaystyle V_{swap} = NA \times (FS_0 - FS_t) \times \sum^{n}_{i=1} PV_i $$
First, sum the present values.
$$\displaystyle 0.9908 + 0.9801 + 0.9675 + 0.9532 + 0.9368 = 4.8284$$
Then, fill in the equation.
$$\displaystyle 150{,}000{,}000 \times (0.015 - 0.014) \times 4.8284 = 724{,}260$$
No.
The present values need to be factored into the equation.
No.
The initiation fixed rate and the current fixed rate factor into the equation.
EUR 150,000.
EUR 724,260.
EUR 31,066,191.
