Ryan borrowed $2300 in year 1 and an additional $3900 in year 2. The 1-year spot rate is 3% and the 2-year spot rate is 4%. Under the loan, the interest rate resets annually to the 1-year spot interest rate. Ryan entered into a 2-year interest rate swap to pay the fixed interest rate and receive the variable rate. The notional amount of the swap matches the notional amount of the loan. Determine the level swap rate R (5 decimal places)

Answer rating: 100% (QA)

To determine the swap rate R we can use the concept of present value and noarbitrage principle Given ... View the full answer