Swap = Fixed-rate Bond − Floater

Compare cash flows and PVs; find the swap rate that makes the swap worth zero

$V_\text{swap}(c) = V_\text{fixed}(c) - V_\text{float} = V_\text{fixed}(c) - N$. Par rate sets $V_\text{fixed}(c) = N$.

Fixed swap rate $c$ 4.00%

Swap maturity 5y

Yield curve level 4.00%

Yield curve slope 0.00%

Payments per year

Notional $N$ $100

PV(fixed-rate bond)

PV(floater) = N

Par (swap) rate

PV(swap, fixed receiver)
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