fair value and classification

jbresett · #1 Jul 20, 2007, 03:28 AM

Assume an interest swap with a notional value of $1,000,000.
Firm receives fixed and pays variable.
The fixed rate on Dec. 31 2003 = 8%
The swap swap has 2 yrs w/ a variable rate of interest of 7.8% in 2004 and 7.6% in 2005 respectively.
There were annual settlements only.
The firm's discount rate is 8%.

I need to know how to calculate the fair value of the derivative and wheterh it should be an asset or liability on the balance sheet.

Also, assume the swap occrred prior to Dec. 2003 and the interest rate swap contract had a debit balance of $1000. Under this circumstance I need to calculate the fair value and make the entry for the fair value as of Dec. 2003.



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