How Interest Rate Swaps Work. Generally, the two parties in an interest rate swap are trading a fixed-rate and variable-interest rate. For example, one company may have a bond that pays the London Interbank Offered Rate (LIBOR), while the other party holds a bond that provides a fixed payment of 5%. If the LIBOR is expected to stay around 3% PV of the swap = 291,933. where: PV of the partial period= 16,666/ (1+ 0.8333%) = 16,528 (roughly), knowing that the interest rate applied to the partial period of 2 months is 5%/6 = 0.8333%. In unwinding a swap with the stub period at the end, the calculation is no different, though it goes the other way around.