You Enter into a $100 Million Notional Swap to Pay

question 33

Multiple Choice

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 floating rate was reset to 6% on March 25,what is the net amount you will receive on September 25?

• A)$933,333
• B)$966,667
• C)$1,000,000
• D)$1,066,667

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Definitions:

Capital Expenditure

A financial outlay made by a company to acquire, maintain, or improve physical assets such as property, plants, and equipment.

Cash Budgeting

The process of estimating future cash inflows and outflows to determine a company's short-term financial health and liquidity.

Payback Period

The length of time required to recover the initial outlay on an investment based on its expected cash flows.

Annual Cash Flows

The net amount of cash and cash-equivalents being transferred into and out of a business during a given fiscal year.