Hewitt Inc. has entered into an equity swap arrangement that allows it to swap a fixed interest rate of 8 percent in exchange for the rate of appreciation on the Dow Jones Industrial Average each year over a three-year period. The notional principal is $1 million. If the Dow depreciates by 1 percent over the year, Hewitt will

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Hewitt Inc. will pay the fixed rate of 8% on the notional principal of $1 million, which is $80,000. Since the Dow depreciates by 1%, the floating side is -1% of $1 million, which is -$10,000. Therefore, Hewitt will have to make a net payment of $80,000 - (-$10,000) = $90,000.