CFAI EOC #9.B

[AlmostDoneIII]

I get the part of not exercising the swaption if the FS(2,5) is below the exercise rate of 5%. But the answer goes on to talk about entering into a 3 yr swap of 4% pay fixed, and recieve Libor of 6.5%???
I don’t get where the 4% came from. Is it just talking about a hypothetical scenario?

 

[Zeeshan Shafi]

It literally says “for example” right next to 4%.

 

[AlmostDoneIII]

Zeeshan Shafi wrote:
It literally says “for example” right next to 4%.

bahaha i’m becoming dilusional,
thanks