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Equity Swap

On of the questions in Schweser for chapter 51 is as follows and it has me baffled.

A bank entered into a $5,000,000, 1-year equity swap with quarterly payments 300 days ago. The bank agreed to pay an annual fixed rate of 4% and received the return on an international equity index. The index was trading at 3,000 at the end of the third quarter, 30 days ago. The current 60-day LIBOR rate is 3.6%, the discount factor is 0.9940, and the index is now at 3,150. The value of the swap to the bank is closest to:

The Answer is:

value of fixed-rate side = 0.9940x$5,050,000=$5,019,700

value of index return side =(3150/3000)(5,000,000)=$5,250,000

value of swap to bank = $5,250,000 - $5,019,700 = $230,300

My question is in the value of a fixed-rate side where did they get $5,050,000? I thought it would have been $5,000,000.
If words can be lethal weapons, I must provide them with an arsenal.
ZeeMattyJ

Best Answer

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