Let’s do a bit of swap valuation. Well known lunchtime bon viveur Sherry van Plonk puts a five-year swap on her books at the set of zeros implied by the data in Table 3.6. She is receiving the fixed side. Then she goes off to lunch, but does not bother to hedge the exposure under the “she’ll be right, mate” precept.

Three hours later she returns, just in time to hear that Alan Greenspan has had a bad lunch, and the zeros term structure has changed as follows:

New rates (still applying for six month intervals):

and the remaining rates as before lunch.
How much has Ms. van Plonk won or lost on her swap?

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R 10.20%p.a. R 9.55 R 9.26 3 R 9.01