Pricing a fixed-floating rate swap agreement to meet no-arbitrage conditions requires that the expected present value of the cash flow payments made by the fixed-rate seller should equal the expected value of the cash flow payments made by the variable-rate buyer.

Question

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In a no-arbitrage condition for a fixed-floating rate swap, the present value of the fixed-rate payments should equal the present value of the expected floating-rate payments, not the expected value of the cash flows themselves.

Pricing a Fixed-Floating Rate Swap Agreement to Meet No-Arbitrage Conditions