Swap Rate vs. Par Rate - Quant Trader Interview Question
Difficulty: Medium
Category: Algorithms & Data Structures
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Topics: interest-rate-swaps, fixed-income, par-rate, swap-rate, present-value
Problem Description
In a plain vanilla interest rate swap, counterparties agree to exchange fixed-rate interest payments for floating-rate interest payments, or vice-versa, based on a notional principal. What is the fixed rate in this swap typically called, and how is its value determined at the initiation of the swap?
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