An interest rate swap has the following specifications:
Counterparty X entered a pay fixed rate swap on Jan 1, 2019 with Counterparty Y. On Dec 31, 2019, the LIBOR rate is 5.5%. What should be the net cashflow?
The net cash outflow for Counterparty X will be $500,000. Details follows -
Here we will take the difference between fixed rate & LIBOR rate, i.e., 7% less 5.5%+1% which is 6.5% hence the difference is .5%.
Since not much of the information is provided for quarterly LIBOR, we are assuming here the LIBOR is same thru period.
Counterparty X will pay to Y additional of $500,000 total over 1 year period thru quarterly interest payments i.e. $125,000 per quarter.
An interest rate swap has the following specifications: Notional principal = $100m Pay fixed rate (annual...
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