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


1 Answer 1


If I understood the problem, you are valuying the swap in the 1st year. The MtM, as you know, is the difference of both legs.

The value of your swap will be: 100*(1+3.95%)-100*(1+2%)=1.95 in year 1.

If you want to calculate the MtM value, just divide by the floating rate: 1.95/(1+2%)=1.911. This is from the fix leg side. If you just change it to the floating rate side, you obtain -1.91


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