Question

An investor enters into a PKR500,000 quarterly plain vanilla interest rate SWAP as fixed rate payer at a fixed rate of 5%. The floating rate payer agrees to pay 90-day LIBOR plus 1% margin, 90 day LIBOR is currently 3%.

90-day LIBOR rates are
3.5%	90 days from now
4.0%	180 days from now
4.5%	270 days from now

5%                                                                              360 days from now

Calculate the amounts investor pays or receives 90,180, 270 and 360 days from now

Answer 1

As the floating rate is decided at the beginning of the period . Assuming 360 day year

Net Amount paid by Investor after 90 days = PKR 500000 * 5%/4 - PKR 500000 * (3%+1%)/4

= PKR1250

Net Amount paid by Investor after 180 days = PKR 500000 * 5%/4 - PKR 500000 * (3.5%+1%)/4

= PKR 625

Net Amount paid by Investor after 270 days = PKR 500000 * 5%/4 - PKR 500000 * (4%+1%)/4

= 0

Net Amount paid by Investor after 360 days = PKR 500000 * 5%/4 - PKR 500000 * (4.5%+1%)/4

= -PKR625 (investor receives PKR625)