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:

Design

The plan or specification for the construction of an object or system or for the implementation of an activity or process.

Feedback

Information given to a person or entity about their actions or performance, used as a basis for improvement.

Accounting Systems

Organized frameworks used for recording, measuring, summarizing, and communicating financial information of a business entity.

Collecting

The process of obtaining payments for debts owed by individuals or businesses.