I'm trying to value a super simple receiver swap immediately after the first swap settlement (1 year in).
The given answer is -1.91 million to the floating rate payer, but I am not coming up with that. I can't figure what I'm doing wrong.
Problem given
Notional $100 million
Fixed rate 3.95%
Floating rate term structure: Year 1: 2% Year 2: 3% Year 3: 4%
Assume the forward rates represent expected future spot rates. All rates are expressed with annual compounding to match the annual settlement cash flows.
My attempt:
Floating leg:
$\frac{100*.03}{(1+.03)} + \frac{104}{(1+.04)^2} \approx 99.06$
Fixed leg:
$\frac{100*.0395}{(1.03)} + \frac{103.95}{(1+ .04)^2} \approx 100$
Making the value to the floating rate payer $\approx$ \$1.06 million