Compute the payments due in the second year on a three-year AMORTIZING swap from company B to company
A)B pays £402,114.80 to A
A) Company A and company B both want to borrow £1,000,000 for three years. A wants to borrow floating and B wants to borrow fixed. A and B agree to split the QSD.
B) B pays £100,000 to A
C) B pays £69,788.52 to A
D) None of the above

Question

Compute the payments due in the second year on a three-year AMORTIZING swap from company B to company
A)B pays £402,114.80 to A
A) Company A and company B both want to borrow £1,000,000 for three years. A wants to borrow floating and B wants to borrow fixed. A and B agree to split the QSD. 
B) B pays £100,000 to A 
C) B pays £69,788.52 to A 
D) None of the above

Quizplus · Accepted Answer

Since it is an amortizing swap, the payments due in the second year would be lower than the first year. 
Option A is the initial payment made by B to A and does not reflect subsequent payments. 
Option B is too low to be the second-year payment, assuming a fixed rate of interest. 
Option C is a plausible second-year payment that would reduce the outstanding principal balance of £1,000,000.

Compute the Payments Due in the Second Year on a Three-Year