Suppose a dealer quotes 'All-in-cost' for a generic swap at 8% against six month SOFR flat. If the notional principal amount of swap is US$…

CA Final · Advanced Financial Management · RTP · May 2026
Suppose a dealer quotes 'All-in-cost' for a generic swap at 8% against six month SOFR flat. If the notional principal amount of swap is US$ 5,00,000. (i) Calculate semi-annual fixed payment. (ii) Find the first floating rate payment for (i) above if the six month period from the effective date of swap to the settlement date comprises 181 days and that the corresponding SOFR was 6% on the effective date of swap. In (ii) above, if the settlement is on 'Net' basis, how much the fixed rate payer would pay to the floating rate payer? Note: 1. Generic swap is based on 30/360 days basis. 2. Round off the calculations to the nearest whole number.

Suggested Answer and Working Notes:

(i) Semi-annual fixed payment = (N) (AIC) (Period) Where N = Notional Principal amount = US$ 5,00,000 AIC = All-in-cost = 8% = 0.08 = 5,00,000 × 0.08 × (180/360) = 5,00,000 × 0.08 (0.5) = 5,00,000 × 0.04 = US$ 20,000/- (ii) Floating Rate Payment = N (SOFR) (dt/360) = 5,00,000 × 0.06 × (181/360) = 5,00,000 × 0.06 (0.503) or 5,00,000 × 0.06 (0.502777) = 5,00,000 × 0.03018 = US$ 15,090 or 5,00,000 × 0.030166 = US$ 15,083 (iii) Net Amount = (i) – (ii) = US$ 20,000 – US$ 15,090 = US$ 4,910 or = US$ 20,000 – US$ 15,083 = US$ 4,917

Topics: Interest Rate Risk Management

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