A one year swap between Samsung and Sony is initiated in which Sony agreed to pay Samsung 6% pa quarterly compounding(quarterly interest rate = 6/4= 1.5 % ) interest on notional principal of $200 million and in return Samsung will pay 3 month LIBOR
Samsung Cashflow in $ million
Dates LIBOR% Fixed CF Floating CF(pay) Net CF
10-jan-13 5.0 ----- --------
10-apr-13 5.2 200*1.5%=3 200*(0.052*3/12)=(2.6) 0.4
10-jul-13 5.6 203*1.5%=3.05 200*(0.056*3/12)=(2.8) 0.25
10-oct-13 5.8 206.05*1.5%=3.09 200*(0.058*3/12)=(2.9) 0.19
10-jan-13 6.0 209.14*1.5%=3.14 200*(0.06*3/12)=(3) 0.14
Fixed payments are always certain therefore interest paid by Sony is certain.
Floating rate is uncertain because it fluctuates with LIBOR.
QUESTION # 2 Consider a 1-year swap initiated on January 10th, 2013, between Sony and Samsung, Under the terms of the swap contract Sony is agreed to pay Samsung an interest of 6% per annum on a...