Company A enters into an interest rate swap contract with semi-annual exchanges in cash that lasts...
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Company A enters into an interest rate swap contract with semi-annual exchanges in cash that lasts for a year. The notional amount of the swap is $1M and the swap rate is set at 5%. If the realized 6M LIBOR rates at today, 6 months from now, and 1 year from now are 3.8%, 4.6%, and 6%, respectively, what is the cash flow to the firm A receiving fixed side of the swap at today, 6 months from now, and 1 year from now?
A. $25,000, $25,000, $25,000 B. $0, $6,000, $2,000
C. $6,000, $2,000, −$5,000
D. −$6,000, −$2,000, −$5,000 E. $0, −$6,000, −$2,000
Homework Answers
Today:
Value of swap is zero..So, no payment
6 months from now:
Fixed will pay 5% and receives 3.8%..Net payment=1.2%..In
dollars=1.2%/2*1000000=$6,000
12 months from now:
Fixed will pay 5% and receives 4.6%..Net payment=0.4%..In
dollars=0.4%/2*1000000=$2,000
Option E
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