Spots:
90 days - .05%
180 days - .10%
270 days - .15%
360 days - .25%
Determine that the annualized equilibrium fixed swap rate for Japanese yen:
The equilibrium swap fixed rate for yen is calculated as
‸rFIX,JPY=1−PV0,t4,JPY(1)4∑i=1PV0,t4,JPY(1)
The yen present value factors are calculated as
PV0,ti(1)=11+rSpoti(NADiNTD)
90-day PV factor = 1/[1 + 0.0005(90/360)] = 0.999875.
180-day PV factor = 1/[1 + 0.0010(180/360)] = 0.999500.
270-day PV factor = 1/[1 + 0.0015(270/360)] = 0.998876.
360-day PV factor = 1/[1 + 0.0025(360/360)] = 0.997506.
Sum of present value factors = 3.995757.
Therefore, the yen periodic rate is calculated as
‸rFIX,JPY=1−0.997506/3.995757=0.000624 or 0.0624%
The annualized rate is (360/90) times the periodic rate of 0.0624%, or 0.2496%.
Why are we annualizing the result if we already used an annualized PV factor (360/360)?