Derivatives

Pricing and Valuation of Interest Rates and Other Swaps practice questions

Pricing and Valuation of Interest Rates and Other Swaps is part of CFA Level I Derivatives. Derivatives questions cover forwards, futures, swaps, options, replication logic, payoffs, and risk-transfer mechanics. Use this page to review the controlling ideas, then work through 7 questions with answer explanations and common traps.

Review the worked explanations before moving into adaptive practice. The app version can mix this topic with due reviews and weak related concepts.

Practice this topic

What to know

Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

How to practice

Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Easy

Derivatives

Pricing and Valuation of Interest Rates and Other Swaps

An interest rate swap in which one party pays a fixed rate and receives a floating rate on each settlement date is most accurately described as economically equivalent to:

Moderate

Derivatives

Pricing and Valuation of Interest Rates and Other Swaps

At the initiation of a fixed-for-floating interest rate swap, the swap's fixed rate is most accurately described as the rate that:

Moderate

Derivatives

Pricing and Valuation of Interest Rates and Other Swaps

A two-year pay-fixed interest rate swap with semiannual settlements is compared with the series of forward rate agreements implicit in the swap. If the term structure is upward sloping, which statement about the implicit forward rate agreements at swap initiation is most accurate?

Easy

Derivatives

Pricing and Valuation of Interest Rates and Other Swaps

A company has issued five-year floating-rate debt on which interest resets semiannually. The treasurer wants to convert the exposure into a known, fixed interest expense for the remaining life of the debt. The most appropriate action is to enter an interest rate swap in which the company:

Moderate

Derivatives

Pricing and Valuation of Interest Rates and Other Swaps

A company is the fixed-rate payer on an interest rate swap with a notional principal of USD 20,000,000 and semiannual net settlement on a 180/360 day-count basis. The swap fixed rate is 3.60%, and the market reference rate set at the beginning of the current period is 3.10%. The net payment made by the fixed-rate payer at the end of the period is closest to:

Difficult

Derivatives

Pricing and Valuation of Interest Rates and Other Swaps

One year ago, an investor entered a three-year receive-fixed interest rate swap with annual settlements at a fixed rate of 4.00% on a notional principal of USD 10,000,000. Today, immediately after the first settlement, the market swap rate for a new two-year swap is 3.40%, and the present value factors for payments due in one and two years are 0.97 and 0.93, respectively. The value of the swap to the fixed-rate receiver is closest to:

Difficult

Derivatives

Pricing and Valuation of Interest Rates and Other Swaps

An asset manager enters an equity swap on a notional principal of USD 5,000,000, agreeing to receive the price return of an equity index and pay a fixed rate of 2.80% per year, with quarterly settlements on a 90/360 day-count basis. Over the first quarter, the index rises from 1,500.00 to 1,545.00. The net amount the manager receives at the first settlement is closest to: