Derivatives - Equity Index SWAP

CFA Level II Derivatives
#1

Hi Guys

I’m having trouble understanding how the value of the fixed rate side of the swap was obtained for the following question:

A bank entered into a $5MM 1 year equity swap with quarterly payments 300 days ago. The bank agreed to pay an annual fixed rate of 4% and receive the return on an international equity index. The index was trading at 3000 at the end of the third quarter, 30 days ago. The current 60 day LIBOR rate is 3.6%, the discount factor is 0.994, and the index is now at 3,150. The value of the swap is.

$230,300.

In calculating the answer (above), the value of the fixed rate side is 0.9940 x $5,050,000 = $5,019,700

Where did they get $5,050,000 from?

#2

not sure - but is it the 4% per year = 1 % per quarter? so 5 * 1.01 = 5.05 MM ?

#3

Funny I was doing this same problem from Schweser last night.

The question says annualized 4% quarterly, so the fixed payment is 4%/4 = 1% every quarter.

1% of $5M is $50,000. We’re looking at the 4th quarter so 3 payments have already been made, and only 1 payment remains.

Principal is $5M

Total payment $5M + $50,000 = $5,050,000

#4

Thanks a lot sir - definitely missing my eye for detail!