Assume That the Swap Is for Two Years and That

question 70

Multiple Choice

Assume that the swap is for two years and that LIBOR is 5.25 percent in year one and 6.25 percent in year two. What will be the net swap cash flow each year if the notional value of a swap is $100 million?

• A)The thrift pays $0.75 million to the bank in year one and receives $0.25 million from the bank in year two.
• B)The thrift receives $0.75 million from the bank in year one and pays $0.25 million to the bank in year two.
• C)The thrift pays $0.25 million to the bank in year one and receives $0.75 million from the bank in year two.
• D)The thrift receives $0.25 million from the bank in year one and pays $0.75 million to the bank in year two.
• E)None of the above.

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Definitions:

Comprehensive Insurance

An insurance coverage that protects against a wide range of perils, excluding certain specified exclusions.

Prepaid Insurance

Prepaid insurance refers to payments made for insurance coverage before the actual coverage period, recognized as an asset on the balance sheet until used.

Insurance Expense

The cost incurred by a business for insurance policies it maintains for protection against risks.

Accrued Revenues

Revenues that have been earned but not yet received in cash or recorded by the company.