Consider a Bank That Has Entered into a Five-Year Swap

question 24

Multiple Choice

Consider a bank that has entered into a five-year swap on a notational balance of $10,000,000 with a corporate customer who has agreed to pay a fixed payment of 10 percent in exchange for LIBOR.As of the fourth reset date,determine the price of the swap from the bank's point of view assuming that the fixed-rate side of the swap has increased to 11 percent.LIBOR is at 5 percent.

• A)$909,090.91 gain.
• B)$90,090.09 loss.
• C)No loss or no gain since maturity has not arrived.
• D)$90,090.09 gain.

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