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

Question

Quizplus · Accepted Answer

The fixed payer pays the difference between the fixed rate and the floating rate on the notional principal. The difference is 0.5% (10% - 9.5%) of $20 million for 180 days, which equals $50,000.

Find the Upcoming Net Payment in a Plain Vanilla Interest