the floating-rate payment for a period and the forward dis- count factor for the period, the present value of the payment can be com- puted. For example, from Exhibit 12.2 we see that the floating-rate payment for period 4 is $1,206,222. From Exhibit 12.4, the forward dis- count factor for period 4 is 0.95689609. Therefore, the present value of the payment is:   present value of period 4 payment = $1,206,222 ´ 0.95689609 = $1,154,229     Exhibit 12.5 shows the present value for each payment. The total present value of the 12 floating-rate payments is $14,052,917. Thus, the     present value of the payments that the fixed-rate payer will receive is $14,052,917 and the present value of the payments that the fixed-rate receiver will make is $14,052,917.   Determination of the Swap Rate The fixed-rate payer will require that the present value of the fixed-rate payments that must be made based on the swap rate not exceed the $14,052,917 payments to be received from the floating-rate payments. The fixed-rate receiver will require that the present value of the fixed-rate payments to be received is at least as great as the $14,052,917 that must be paid. This means that both parties will require a present value for the fixed-rate payments to be $14,052,917. If that is the case, the present value of the fixed-rate payments is equal to the present value of the float- ing-rate payments and therefore the value of the swap is zero for both parties at the inception of the swap. The interest rates that should be used to compute the present value of the fixed-rate payments are the same interest rates as those used to discount the floating-rate payments. To show how to compute the swap rate, we begin with the basic rela- tionship for no arbitrage to exist:   PV of floating-rate payments = PV of fixed-rate payments   We know the value for the left-hand side of the equation.   EXHIBIT 12.5 Present Value of the Floating-Rate Payments   (1) (2) (3) (4) (5) (6)