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Orphenix
Jun 2, 2012, 10:38 AM
Suppose that an investment banker introduces a new product – an “interrupted” swap. An example of an interrupted swap would be a three-year swap in which the second payment is excluded. The swap is thus interrupted in the middle year. Find the fixed rate a swap dealer would charge on this swap using the following table of zero-coupon bond prices (face values = $1000). The swap is 3 years, and calls for annual payments (except for the excluded middle year).

Maturity (years) ZCB price
1 $952.38
2 $898.47
3 $839.69