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

question 99

Multiple Choice

Consider 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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Definitions:

Tort

A civil wrong or injury that leads to legal liability, allowing the injured party to seek compensation for damages caused by the tortfeasor.

Exploitation

Also referred to as financial abuse, it is the unauthorized or improper use of the resources of an elder for monetary or personal benefit, profit, or gain. Examples include forgery; misuse or theft of money or possessions; use of coercion or deception to surrender finances or property; or improper use of guardianship or power of attorney.

Elder

A term that refers to an older person, often used with respect and to acknowledge their wisdom and experience.

Monetary Benefit

Financial advantage or gain received from an action or investment.