Question

Jay enter a plain vanilla swap transaction as a buyer. Assume annual bond CF, the transaction (par value) is $10 Millions, the fixed rate is 6.5% and 1 year later, the LIBOR rate is 6.0%, caculate his net transaction, round to nearest dollar. Enter negative if he pays and postive if he receives.

Answer 1

Term of Swap	1 Year
Frequency of exchange	yearly
Notional Principal	$10 million

Swap cash flows:

Fixed rate	Floating rate ( LIBOR rate)	Difference
6.5 %	6.0%	-0.5%

In the above situation the person JAY entered into plain swap transaction as a buyer. That means he entered to buy (receive) LIBOR in exchange(paying) of Fixed rate of 6.5%. On net transaction basis Jay paid 0.5% on the notional amount of $10 million = $ -0.05 million.