Suppose the Quote for a Five-Year Swap with Semiannual Payments

question 29

Multiple Choice

Suppose the quote for a five-year swap with semiannual payments is 8.50-8.60 percent.This means

• A)the swap bank will pay semiannual fixed-rate dollar payments of 8.50 percent against receiving six-month dollar LIBOR.
• B)the swap bank will receive semiannual fixed-rate dollar payments of 8.60 percent against paying six-month dollar LIBOR.
• C)both a) and b)
• D)none of the above

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Definitions:

Marginal Cost

The variation in overall expenses that occurs with a one-unit increase in production.

Typeset

The arrangement and setting of textual material in a specific style and size of type for printing.

Zero Marginal Cost

The situation in which producing an additional unit of a good or service does not incur any additional cost.

Fixed Cost

Costs that do not change with the level of production or output, such as rent, salaries, and loan payments.