Find the Market Value of a Plain Vanilla Swap from the Perspective

question 58

Multiple Choice

Find the market value of a plain vanilla swap from the perspective of the fixed rate payer in which the upcoming payment is in 30 days,and there is one more payment 180 days after that.The fixed rate is 7 percent and the upcoming floating payment is at 6.5 percent.The notional amount is $15 million.Assume 360 days in a year.The prices of Eurodollar zero coupon bonds are 0.9934 (30 days) and 0.9528 (210 days) .

• A)the fixed payer pays $31,763.75
• B)the fixed payer pays $71,527.50
• C)the floating payer pays $49,500
• D)the floating payer pays $194,228
• E)none of the above

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Definitions:

Majority Determining

The process by which the greater number or majority's choice decides an outcome in a decision-making context.

Condorcet Paradox

A situation in social choice theory where collective preferences can be cyclical, even if the preferences of individual members are not, leading to a lack of transitivity in voting outcomes.

Transitive Preferences

A consistency in choice such that if an individual prefers option A to B and B to C, then they will also prefer A to C.

Arrow's Impossibility Theorem

A principle in social choice theory stating that no rank-order voting system can be designed that always satisfies a set of fair criteria when there are three or more options.