Your firm enters into a swap agreement with a notional principle of $40 million where the firm pays a fixed-rate of interest of 5.50% and receives a variable-rate of interest equal to LIBOR plus 150 basis points. If LIBOR is currently 3.75%, the NET amount your firm will receive (+) or pay (-) on the next transaction date is

Question

Quizplus · Accepted Answer

To calculate the net amount to be received or paid by the firm, we first need to calculate the variable-rate of interest that the firm will receive. 
Variable-rate = LIBOR + 150 basis points = 3.75% + 1.50% = 5.25%
The firm pays a fixed-rate of interest of 5.50%. 
Therefore, the net amount to be received or paid by the firm on the next transaction date will be:
Net amount = (Variable rate - Fixed rate) x Notional principal amount
Net amount = (5.25% - 5.50%) x $40 million = -$100,000
Therefore, the correct answer is option D.

Your Firm Enters into a Swap Agreement with a Notional