Question

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

Answer 1

Present value of fixed and floating payments must be equal when the swap is originated because value of swap for both the parties at the initiation date will be zero.

So it can be said that present value of both the fixed payment as well as the floating payments are equal to each other when the swap has been initiated.

all the other options are not true because they are representing the incorrect statements about the origination of swaps.

Correct answer is option (C) present value of fixed and floating payments must be equal when the swap is originated.