The value of a pay-fixed,receive floating interest rate swap is found as the value of a
A)floating-rate bond times the value of a fixed-rate bond.
B)floating-rate bond plus the value of a fixed-rate bond.
C)floating-rate bond minus the value of another floating-rate bond.
D)fixed-rate bond minus the value of another fixed-rate bond.
E)floating-rate bond minus the value of a fixed-rate bond.

Question

Quizplus · Accepted Answer

The value of a pay-fixed, receive-floating interest rate swap is found by calculating the difference between the present value of the fixed-rate payments and the present value of the floating-rate payments. This can be represented as the present value of a floating-rate bond minus the present value of a fixed-rate bond, making option E the correct answer.

The Value of a Pay-Fixed,receive Floating Interest Rate Swap Is