Q&A: An investor enters into a 5-year interest rate swap...

...The notional amount is $100 million and the reference rate is 3-month LIBOR. Payments are made quarterly. The swap rate that the investor agrees to pay is 5%. How much should the investor pay the dealer at the end of the first quarter, if for the first floating-rate payment 3-month LIBOR is 4%?


  • The fixed-rate payment each quarter is $100mil * (0.05/4) = $1.25mil
  • The first quarter floating-rate payment is $100mil * 0.04/4 = $1.0 mil
  • $1.25 - $1.0 = $0.25mil: the amount the investor shuld pay the dealer.

Category: C++ Quant > Derivatives

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