Your Firm Enters into a Swap Agreement with a Notional

question 59

Multiple Choice

Your firm enters into a swap agreement with a notional principle of $40 million where the firm pays a fixed-rate of interest of 5.50% and receives a variable-rate of interest equal to LIBOR plus 150 basis points. If LIBOR is currently 3.75%, the NET amount your firm will receive (+) or pay (-) on the next transaction date is

• A) -$2,200,000
• B) $2,625,000
• C) $125,000
• D) -$100,000
• E) -$875,000 ((3.75% + 1.50%)-5.25%) * $40 million = -$100,000

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Definitions:

Engage

To participate or become involved in a particular activity or to enter into combat or conflict.

Behaviors

Actions or reactions of an individual, in response to external or internal stimuli.

Schemes

In cognitive development, structured patterns of thought or behavior that organize categories of information and the relationships among them.

Action Patterns

Action patterns are sequences of coordinated behaviors that are innate and triggered by specific stimuli, often observed in the animal behavior context.