R34 EOC 24.
WMTC originally enters a five-year variable rate loan. Principal amount: $10,000,000. Rate: Libor + 200 basis points, paid semiannually, reset every six months. Loan rate was reset today at a Libor of 5%.
Company now thinks interest rate will increase.
To hedge the interest rate risk on the five-year variable rate loan, Lopez recommends that WMTC enter into a contract with Swap Traders International (STI), who offers an interest rate swap with a notional principal of $10 million that provides a fixed rate of 6% in exchange for Libor, with semiannual payments.
The way it is written, it makes it sound like STI will pay 6% fixed rate and receive Libor. But the proper way to set this up is to have STI pay Libor and receive fix.
Is this a typo? Or is this a play on words?
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