You enter into a $100 million notional swap to pay six-month Libor and receive $x$ %.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 floating rate was reset to 6% on March 25,what must be the minimum value of $x$ that ensures you will receive a positive net payment on September 25?
A)5.87%
B)5.95%
C)6.00%
D)6.01%

Question

Quizplus · Accepted Answer

The correct answer is A because the floating rate is 6% and the fixed rate must be greater than 6% to ensure a positive net payment. The minimum value of x that ensures a positive net payment is 5.87%.

You Enter into a $100 Million Notional Swap to Pay xxx

You Enter into a $100 Million Notional Swap to Pay $x$