Find the Upcoming Net Payment in a Plain Vanilla Interest

question 18

Multiple Choice

Find the upcoming net payment in a plain vanilla interest rate swap in which the fixed party pays 10 percent and the floating rate for the upcoming payment is 9.5 percent.The notional principal is $20 million and payments are based on the assumption of 180 days in the payment period and 360 days in a year.

• A)fixed payer pays $1,950,000
• B)fixed payer pays $950,000
• C)floating payer pays $1 million
• D)floating payer pays $50,000
• E)fixed payer pays $50,000

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Definitions:

Mental Shortcuts

Cognitive strategies or heuristics that simplify decision making by using limited information, allowing for faster judgements but sometimes at the cost of accuracy.

Self-Serving Bias

A cognitive bias that involves individuals attributing their successes to internal factors while attributing failures to external factors.

Information Presentation

The method or format in which information is organized and provided to an audience or users.

Disconfirmatory Information

Information or evidence that contradicts or refutes one's beliefs or assumptions.