A three-year interest rate swap has a level notional amount of 300,000. Each settlement period is one year and the variable rate
is the one-year spot interest rate at the beginning of the settlement period. One year has elapsed and the one-year spot interest rate at the start of year 2 is 4.45%. Time to Maturity 1 2 3 4 5
Price of zero coupon bond with Maturity value 1 0.97 0.93 0.88 0.82 0.75
Calculate the net swap payment by the payer at the end of the second year.
A. −400
B. −300
C. −200
D. −100
E. 0
Hint : Find the swap rate R using the table and then use R and the one-year spot rate at the start of year 2 to find the net swap payment at the end of year 2.
