Question

The main principle for pricing interest-rate swaps can be generally formulated as: Spot and forward rates...

The main principle for pricing interest-rate swaps can be generally formulated as:

Spot and forward rates much be equal when the swap is first originated

Present Values of fixed and floating rate payments must be equal at any time

Present Values of fixed and floating payments must be equal when the swap is originated

Fixed-rate and floating-rate payments must be equal
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Answer:- Present Values of fixed and floating payments must be equal when the swap is originated

Explanation:- Present Values of the expected cash flows on one side of the swap must be equal to the expected cash flows to the other side of the swap at initiation level that means that the Present Value of the cash flows to the floating rate side of the swap must equal the Present Value of the cash flows to the fixed side of the swap because none of the party should be at loss when the swap contract is entered into.

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