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Interest rate swaps may seem scary, but both large and small entities do them all the time. It can be used as a hedge or as a bet about future interest rates. Many banks offer them as an investment vehicle. What you can do with this template is figure out the present value of both legs and get a better understanding of how this financial instrument works. Note, this does involve risk and doing such investments can result in monetary loss depending on how the future interest rates change.
A rate swap is considered a derivative contract that will have some value based on existing conditions and expectations about future conditions. They can be traded based on their terms rates sort of like stock option contracts where there is some expiration date and some future value remaining for a given contract.
This is a vanilla interest rate swap valuation calculator built in Excel. This kind of financial instrument is designed to let two parties pay each other interest rates based on some notional value.
One party will pay a fixed leg while the other pays a variable leg. Depending on how interest rates change over time, one of the legs is going to be valuable and the other not.
The model will show each payment over time based on all the dynamic assumptions and calculate which leg is more profitable given certain configurations of libor / future interest rates.
The primary inputs include:
• First Payment Date
• Notional Amount
• Interest Rate
• Payment Schedule
• Annual Payments (formula)
• Total Years Swap Lasts For
• Total Payment Periods (formula)
• Starting Libor
• Expected Libor % Change per Period
• Period you Expect Libor to Start Changing
Based on the above inputs, the model will calculate the total and present value of cash flows for each leg and show the value of each leg given the assumptions. There are lots of visualizations that make the results easy to understand over time.
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Source: Interest Rate Swap Valuation Excel (XLSX) Spreadsheet, Jason Varner | SmartHelping
ABOUT THE AUTHOR: JASON VARNER | SMARTHELPING
I graduated in 2011 with a Bachelors degree in Accounting. From there, I worked at a few small businesses doing financial reporting and some bookkeeping. After a few years of that, I started doing freelance financial consulting work on Elance and Upwork.
After over 400 jobs completed with a 100% success rate, I now run my own modeling/consulting practice, conduct live streams on YouTube Monday and Tuesday mornings and continue to build new financial models.
I occasionally take on custom financial modeling work.
Jason Varner | SmartHelping has published 105 additional documents on Flevy.
This business document is categorized under the function(s): Corporate Finance
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File Size: 205.9 KB
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Initial upload date (first version): Nov 23, 2022
Most recent version published: Nov 25, 2022
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