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

question 86

Multiple Choice

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

• A)the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar LIBOR.
• B)the swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR.
• C)if the swap bank is successful in getting counterparties to both legs of the swap at these prices, he will have an annual profit of ten basis points.
• D)none of the above

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Definitions:

Uncollectible

Accounts receivable that cannot be recovered or are very unlikely to be paid by debtors.

Income Statement Approach

An analytic method focusing on revenues and expenses to determine the net income of a business within a specific period.

Net Credit Sales

The total revenue from sales made on credit, minus any returns or allowances.

Allowance for Doubtful Accounts

A contra-asset account that represents the estimated portion of accounts receivable that may not be collectible.