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Interest Rate Swap for Fixed Payment Side

There is a 2 year swap contract (fix to float) signed on the swap rate of 5%; Interest will be exchanged every half year. Now suppose the swap contract start from now on and the current zero rates are in the table below. Calculate how much the swap value right now for the fixed payment side.

Maturity(Yrs) Zero Rate(Continuous compounding)
0.50 5.20%
1.00 5.30%
1.50 5.30%
2.00 5.45%

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There is a 2 year swap contract (fix to float) signed on the swap rate of 5%; Interest will be exchanged every half year.  Now suppose the swap contract start from now on and the current zero rates are in the table below. Calculate how much the swap value right now for the fixed payment side.

Maturity (Yrs) Zero Rate(Continuous compounding)
0.5 5.20%
1 5.30%
1.5 5.30%
2 5.45%

Step 1: Calculate 6 month forward rates at the end of 0.5 years, 1 year and 1.5 years

Time (Yrs) 6 month Forward rate
0 5.20%
0.5 5.40% =(1x 5.3% - 0.5 x 5.2%)/(1 - 0.5)
1 5.30% =(1.5x 5.3% - 1 x 5.3%)/(1.5 - 1)
1.5 5.90% =(2x 5.45% - 1.5 x ...

Solution Summary

The expert calculates how much the swap value right now for the fixed payment sides. Interest rate swap for fixed payment sides are determined.

$2.19