Suppose that you are fixed payer on a $80M-notional plain-vanilla 4-year interest-rate swap with rate c=3%. In additional you have a short 2-year cap position on $65M notional with rate K C =4.2% and a long 3-year floor position on a notional $60M with rate K P =2.5%. You took all these positions today, and they settle every 6 months,

Suppose that you are fixed payer on a $80M-notional plain-vanilla 4-year interest-rate swap with rate c=3%. In additional you have a short 2-year cap position on $65M notional with rate K_C=4.2% and a long 3-year floor position on a notional $60M with rate K^P=2.5%.


You took all these positions today, and they settle every 6 months, starting with a first settlement 6 months from now.


What is your net cashflow in 6 months if the current 6-month interest rate is r=2.2%? 

Expert Answer

The cash flows from each position must be identified in order to calculate the net cash-flow over the next six months. You will pay the fixed rate of View the full answer