Both legs are valued before netting in this GF561 Unit 7 swap valuation problem, where an airline's pay-fixed position comes out 573,690 dollars against it, confirmed two independent ways. Searches like "gf 561 unit 7 assignment example", "gf561 unit 7 sample" and "gf561 unit 7 example" land here.
What a finished GF561 Unit 7 swap valuation problem looks like
Three parts on roughly four pages, anchored by one curve table. The swap has 80 million of notional, a 4.10 percent fixed rate paid annually, and a floating rate fixed as each period begins, 3.70 percent at the last reset. Three payments remain, due in 0.25, 1.25 and 2.25 years, discounted at continuously compounded zero rates of 4.30, 4.05 and 3.90 percent, which give factors of 0.989308, 0.950635 and 0.915990. Part one prices the fixed leg as a bond at 82,646,646 and the floating leg at 82,072,956, the next known payment plus par discounted over a quarter-year. Part two rebuilds the value from forward rates of 4.068 and 3.782 percent and lands on the same minus 573,690. Part three adds sensitivity: 15,583 per basis point.
How a GF561 Unit 7 example is structured
The problem opens with a term sheet and the curve, then states the convention everything else depends on: the floating rate here is fixed when each period begins, the textbook form, and a note explains that swaps on compounded overnight SOFR fix in arrears, which changes which payment is known. The bond method comes first. Each fixed cash flow is listed with its discount factor and present value, and the floating leg is valued in one line, with the reason it returns to par at a reset stated before the arithmetic. The forward method follows as a table: period, forward rate, expected floating payment, fixed payment, net and present value. A reconciliation line shows the two methods agree to the dollar. Sensitivity closes the set with values under parallel shifts of 100 basis points.
Convention before calculation
Start-of-period fixing is named as the textbook form, and a note records how compounded SOFR fixing in arrears would change the known-payment step.
The fixed leg as a bond
Three coupons of 3,280,000 and the final principal are discounted at their own factors, summing to 82,646,646 before anything is netted.
Why the floating leg returns to par
At each reset the floating leg is worth its notional, so par plus the 2,960,000 already fixed, 82,960,000 in all, is discounted over a quarter-year to 82,072,956.
Forwards as a cross-check
Forward rates of 4.068 and 3.782 percent set the expected floating payments, and three netted flows discount to the same minus 573,690.
Sign stated, sensitivity added
Negative means the airline would pay to exit; a 100 basis point fall deepens that to 2,151,431, and a rise of the same size turns it positive.
Where marks go in GF561 Unit 7
Swap problems lose most where the legs are never valued separately, a net payment discounted directly without showing what each side is worth, because most prompts want both. Treating the floating leg as par on a date between resets is the error graders see most; the known next payment has to be added and discounted first. A sign convention that is never stated leaves the reader unsure whether minus 573,690 is owed or owned. Forward rates taken as the current floating rate for every period erase the curve's shape and misvalue the swap. Mixing continuous zero rates with annual payment conventions without converting produces small, plausible errors. Answers ignoring whether the floating rate fixes in advance or in arrears also miss a point current texts now raise.
Get a GF561 Unit 7 example written to your instructions
With the notional, fixed rate, reset dates and curve from your GF561 Unit 7 problem, plus the rubric, both legs are valued, then netted, and a second method confirms the figure. Currency swaps follow the same pattern where a prompt asks for one. The first custom sample carries no charge; allow 24-48h.
GF561 Unit 7 questions, answered
Which method does my instructor expect, bonds or forwards?
Many prompts accept either, and some ask for both. The sample uses the bond method first because it shows each leg's value directly, then repeats the valuation with forward rates to prove the answer. When the two agree to the dollar, a grader has strong evidence that the curve and the conventions were applied correctly throughout the problem.
Why is the swap worth less than zero to the airline?
Because it agreed to pay 4.10 percent fixed, and the forward rates implied by today's curve sit below that level. Paying above the market's expected floating rate is a liability. The sample states the sign convention at the top, so the minus sign reads as a value to the fixed payer rather than as an arithmetic error.
Does SOFR change the valuation?
It changes one step. Swaps referencing compounded overnight SOFR fix the floating payment in arrears, so the next payment is not known in advance as it is under the start-of-period convention. Most textbook problems still use the older convention for clarity. The sample follows the prompt's convention and adds a note on the difference, which several rubrics now reward.