24-82 Assume that the swap is for two years and that LIBOR is 5.25 percent in year one and 6.25 percent in year two.What will be the net swap cash flow each year if the notional value of a swap is $100 million?
A)The thrift pays $0.75 million to the bank in year one and receives $0.25 million from the bank in year two.
B)The thrift receives $0.75 million from the bank in year one and pays $0.25 million to the bank in year two.
C)The thrift pays $0.25 million to the bank in year one and receives $0.75 million from the bank in year two.
D)The thrift receives $0.25 million from the bank in year one and pays $0.75 million to the bank in year two.
E)None of the above.

Question

Quizplus · Accepted Answer

The thrift pays LIBOR on the notional value of the swap in year one and receives 6.25 percent on the notional value of the swap in year two. Thus, the net swap cash flow is -$0.75 million in year one and $0.25 million in year two.

24-82 Assume That the Swap Is for Two Years and That