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Hi John,
On this article on the acca site:
they have a example at the end which looks at the value of interest rate swap contract using the forward rates. I dont understand how they calculated the 5.68m which equates to 5.68% for the payments under the swap.
Can you please let me know how they got to this figure, I remember a past paper question similar to this but in that question they told you what the rate of payment was, in this article you have to work out the rate of payment.
Kind Regards,
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Hi John not sure if you got a chance to see the above.
Sorry I must have missed this when you first asked it.
They have taken the net interest amount (the interest received on the swap less the fixed interest (R) payable on it), and discounted it at the spot yield curve rates.
It is then using a bit of algebra to calculate the value of R that makes the NPV equal to zero.
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