Question

*Exercise 123 On January 2, 2018, Tylor Company issued a 4-year, $550,000 note at 6% fixed Interest, interest payable semiannually. Tylor now wants to change the note to a variable rate note. As a result, on January 2, 2018, Tylor Company enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $550,000. At each 6-month period, the variable interest rate will be reset. The variable rate is reset to 6.6% on June 30, 2018. x Your answer is incorrect. Try again. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2018. Net interest expense * Your answer is incorrect. Try again. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2018. Net interest expense Question Attempts: 1 of 3 used

Answer 1

Answer:

Particulars	30-06-2018	31-12-2018
Fixed- rate debt	5,50,000	5,50,000
Fixed rate (6% / 2)	3%	3%
Semi Annual Debt Payment	16,500	16,500
Swap fixed receipt	16,500	16,500
Net Income Effect	$ 0	$ 0
Swap Variable Rate
(5.7% * 1/2 * $550,000)	15,675
(6.6%  1/2  $550,000)	-	18,150
Net Interest Expence	15,675	18,150