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    Plain vanilla, two-year interest rate swap

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    What would be the swap fixed rate (SFR) for a plain vanilla, two-year interest rate swap, payments every six months beginning 07/01/0X, with the following assumptions/data:
    Swap initiation - January 1, 200X
    FRA1,0=2.221%; FRA1,1=2.258%; FRA1,2=2.322%; FRA1,3=2.388%;FRA1,4=2.520%;FRA1,5=2.632%
    (Read the notation, FRA1,0 as "six-month forward rate from 01/01/0X,FRA1,1 as "six-month forward rate, six months from 01/01/0X, FRA1,2 as "six-month forward rate, one-year from 01/01/0X, etc.)
    LIBOR to remain at 2.18%

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    https://brainmass.com/business/interest-rates/plain-vanilla-two-year-interest-rate-swap-7335

    Solution Preview

    See attached file

    Let the notional Principal be= $10,000,000 (it can be any figure; values of interest payments will change accordingly but SFR will remain the same)
    Swap initiation - January 1, 200X
    The half yearly payment are made every six months beginning July 1, 0X,
    Let the fixed rate payment every half year be F (Colum E)
    Floating rate payments are shown in the table below Column C
    We also calculate the discount factors
    It is customary to discount cash flows in a swap at LIBOR rates which in this case is equal to 2..18%

    A B C D E F
    FRA Floating rate interest payment Fixed rate interest payment "Discount factor for discounting to the beginning of the ...

    Solution Summary

    The problem asks for the calculation of swap fixed rate (SFR) for a plain vanilla, two-year interest rate swap. The solution provides a detailed step by step calculation.

    $2.19