On January 1,2014,Panther Company Received a Two-Year $600,000 Loan

question 48

Multiple Choice

On January 1,2014,Panther Company received a two-year $600,000 loan.The loan calls for payments to made at the end of each year based on the prevailing market rate at January 1 of each year.The interest rate at January 1,2014,was 10 percent.Aegean company also has a two-year $600,000 loan,but Aegean's loan carries a fixed interest rate of 10 percent.
-Panther Company does not want to bear the risk that interest rates may increase in year two of the loan.Aegean Company believes that rates may decrease and they would prefer to have variable debt.So the two companies enter into an interest rate swap agreement whereby Aegean agrees to make Panther's interest payment in 2015 and Panther likewise agrees to make Aegean's interest payment in 2015.The two companies agree to make settlement payments,for the difference only,on December 31,2015.If the interest rate on December 31,2014 is 12 percent,what amount will Panther report as the fair value of the interest rate swap at December 31,2014 (answers rounded to the nearest dollar) ?

• A) $0
• B) $10,715
• C) $12,000
• D) $600,000

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Definitions:

Conditioning

The process of learning associations between environmental stimuli and behavioral responses, typically divided into classical and operant conditioning.

Stimuli

External or internal events or occurrences that elicit responses from organisms, instrumental in learning and behavior processes.

Environment

The total of all outside factors and forces impacting an organism or a collection of organisms' life, growth, and persistence.

Unconditioned Stimulus

In classical conditioning, a stimulus that naturally and automatically triggers a response without any prior learning.