Consider the following swap. Party A will pay after 6 months (182 days) a fixed rate...
Consider the following swap. Party A will pay after 6 months (182 days) a fixed rate 7.50 percent per annum on a semiannual basis, and receives from Party B LIBOR + 40 basis points. The current six-month LIBOR rate is 6.75 percent per annum. The notional principal is 50 million dollars.
2) a) Compute the fixed and floating rate payments.
2) b) What is the net payment and which party makes it?
Homework Answers
a. Fixed Rate Payments = Principal * Fixed Rate * 6 / 12
Fixed Rate Payments = $50 Million * 7.50% * 6 / 12
Fixed Rate Payments = $1875000
Floating rate Payment = Principal * Floating Rate * 6 / 12
Floating rate Payment = $50 Million * ((6.75%/2)+0.40) * 6 / 12
Floating rate Payment = $1887500
b.Net Payment = $1887500 - 1875000 = $12500
The Party A Makes $12500
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