You enter into a $100 million notional swap to pay six-month Libor and receive 8%.Payment dates are semi-annual on both legs.The last payment date was March 25 and the next payment date is September 25.Floating payments are based on the USD money-market convention,and fixed payments are based on the 30/360 convention.If the net payment you will receive on September 25 is zero,what must have been the Libor reset on march 25?

Question

Quizplus · Accepted Answer

Since the money-market uses A/360 and the period has 184 days in it,the money market rate must have been less than 6% to exactly cancel out the effect of a 6% fixed rate which uses the 30/360 convention.

You Enter into a $100 Million Notional Swap to Pay