Question

Consider the following information about an interest rate swap: two-year term, semiannual payment, fixed rate = notional USD 10 million. Calculate the net coupon exchange for the first period if LIBOR is 5% at the beginning of the period and 5.5% at the end of the period Q2. 6%, floating rate = LIBOR + 50 basis points, A. Fixed-rate payer pays USD 0 B. Fixed-rate payer pays USD 25,000 C. Fixed-rate payer pays USD 50,000 D. Fixed-rate payer receives USD 25,000 E. Fixed-rate payer receives USD 50,000

Answer 1

Interest rate Fixed = 6.00%

Floating rate = LIBOR + 0.50%

Period = 2 year semiannual payment

Notional amount = $10,000,000

Settlement date for 1st period is beginning Time. LIBOR is 5%. So,floating rate will be5%+0.5% = 5.5%

Party buying Fixed rate will receive floating and Pay fixed.

net Amount received by Fixed rate payer = (floating rate-fixed rate) *Notional amont*month/12

(5.5%-6%)*10000000*6/12

=-25000

So, fixed rate payer will pay $25000.