Katmail Company

I wouldn't worry too much about the swap because this question was set by the previous examiner and he worded it rather differently than the current examiner does. However they are currently paying six monthly floating interest of (L + 1.2%) / 2 = L/2 + 0.6%. If they swap they will pay fixed interest six monthly of 5.4%/2, and receive interest of L/2 So the end result will be that they end up paying (L/2 + 0.6%) + 2.7% - L/2 = 3.3% This is the 6 monthly end result which you then turn into a yearly rate in the normal way. With regard to the VaR, best is to watch my short lecture on this (which is linked with all the other lectures from the main P4 page). It is only short and explains in detail (otherwise I would really only be typing out when you already have in the answer in your revision kit :-) )