Question

Alpha Corporation and Horizon Ltd have decided to go into a plain vanilla interest rate swap, Alpha pays a fixed interest rate of 6% pa while Horizon pays floating rate based on Libor rate. The notional amount is $10 Million. Based on the rates given calculate each payoff on semiannual basis lull '2001 | 54% 341201| 65% jan 12003 | I'Y% 3.4 , | 12%.

Answer 1

Plain Vanilla Swap:- Also called Generic Swap and it involves the exchange of fixed rate loan to a floating rate loan. Floating rate basis can be LIBOR, MIBOR, Prime lending rate etc.

Formulas
Semi-Annual Fixed Payment
= (N) (AIC) (PERIOD)
N	=	Notional Principal Amount
AIC	=	ALL IN COST
Floating rate payment
=(N) (LIBOR)(DT/360)
N		=	$ 10 MILLION		1000000
AIC Fixed rate		=	6%
LIBOR		=	As given in question
S.No.	Date	Options
		Alpha- Fixed Interest Rate			Horizon- Floating Rate Based
		Rate	Period	Int amt	Rate	Period	Int amt
1	Jan-01	6%	6 Month	30000	5.20%	6 Month	26000
2	Jul-01	6%	6 Month	30000	5.80%	6 Month	29000
3	Jan-02	6%	6 Month	30000	6.20%	6 Month	31000
4	Jul-02	6%	6 Month	30000	6.00%	6 Month	30000
5	Jan-03	6%	6 Month	30000	6.40%	6 Month	32000
6	Jul-03	6%	6 Month	30000	6.20%	6 Month	31000
	Total			180000			179000