## Swap rate formula cfa

CFA Exam Prep: Level 2 Interest Rate Derivatives, Options, and Swaps #CFAexam - Duration: 9:54. Allen CFA Exam Prep 19,613 views We love what we do, and we make awesome video lectures for CFA Skip navigation Sign in. Interest rate swaps CFA Level II: Derivatives - Pricing and Valuation of Forward Part I(of 3 An interest rate swap is an over-the-counter derivative contract in which counterparties exchange cash flows based on two different fixed or floating interest rates. The swap contract in which one party pays cash flows at the fixed rate and receives cash flows at the floating rate is the most widely used interest rate swap and is called the plain-vanilla swap or just vanilla swap.

the correct formula for fixed rate in swaps is (1-Dn) / (D1 + D2 + … Dn) Where Di is the discount factor An interest rate swap is an agreement to exchange one stream of interest payments for another, based on a specified principal amount, over a specified period of time. Here is an example of a plain vanilla interest rate swap with Bank A paying the LIBOR + 1.1% and Bank B paying a fixed 4.7%: The calculation of swap rate formula will be as follows, F = 1 -0.93/(0.98+0.96+0.95+0.93) The equilibrium fixed swap rate after 1 year is 1.83% The calculation of equilibrium swap rate formula will be as follows, The swap fixed rate is like calculating the YTM of a bond; that is, the constant rate (assuming reinvestment) which is equal to a series of uneven cash flows. YTM is also analogous to the IRR. Think of the DFs as being continuous time representations of a $1 coupon received at its respective maturity. A swap rate is the rate of the fixed leg of a swap as determined by its particular market and the parties involved. In an interest rate swap, it is the fixed interest rate exchanged for a benchmark rate such as Libor, plus or minus a spread. From Apple’s perspective the value of swap today is$ -0.45 million (the results are rounded) that is equal to the difference between the fixed rate bond and floating rate bond. A forward rate indicates the interest rate on a loan beginning at some time in the future, whereas a spot rate is the interest rate on a loan beginning immediately. Thus, the forward market rate is for future delivery after the usual settlement time in the cash market. Forward Rates