hard · FRM Part 1
A bank is valuing a seasoned pay-fixed swap with 1 year to maturity and semiannual resets. The next reset is in 2 months.
Which of the following is the most accurate method for valuing the floating leg between reset dates?
- Use the current 2-month spot rate as the floating payment for the final period
- Discount all future expected floating payments using the current forward curve
- Treat the floating leg as always equal to par because it is a floating-rate instrument
- Discount the next floating payment (already known) and the notional principal back to the present from the next reset date
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