Find the upcoming net payment in a plain vanilla interest rate swap in which the fixed party pays 10 percent and the floating rate for the upcoming payment is 9.5 percent.The notional amount is $20 million and payments are based on the assumption of 180 days in the payment period and 360 days in a year.
A)fixed payer pays $1,950,000
B)fixed payer pays $950,000
C)floating payer pays $1 million
D)floating payer pays $50,000
E)fixed payer pays $50,000

Question

Quizplus · Accepted Answer

The fixed payer pays 10% annually, which is $1 million for 180 days ($20 million * 10% * 180/360). The floating payer pays 9.5% annually, which is $950,000 for 180 days ($20 million * 9.5% * 180/360). The net payment is $1 million - $950,000 = $50,000, so the fixed payer pays $50,000.

Find the Upcoming Net Payment in a Plain Vanilla Interest