Hi David, Can you explain to me how to solve the following question: Assume that a bank enters into a USD 100 million, 4-year annual pay interest rate swap, where the bank receives 6% fixed against 12-month LIBOR. Which of the following numbers best approximates the current exposure at the end of year 1 if the swap rate declines 125 basis points over the year? a. USD 3,420,069 b. USD 4,458,300 c. USD 3,341,265 d. USD 4,331,382 the solution from the book is first calculate fixed rate bond 6/(1+4.75%)+6/(1+4.75%)^2+106/(1+4.75%)^3, then subtract $100 for floating leg. It is a 4 years bond, but why is it using 3 years to calculate the fixed rate bond present value. Also I don't think it is correct to use 4.75%. Thanks a lot.