Fixed & LIBOR

Consider a swap with a notional principal of $120 million.

A pays fixed (11% ) & receives LIBOR from B

At t=0 LIBOR=12%

At t=180 days LIBOR=10%

At t=360 days LIBOR=9%

which of the following statements is CORRECT? At the end of 360 days:

A) A pays B $13.2 million and B pays A $12 million. B) A pays B $0.6 million. C) A pays B $1.2 million.

You don’t state it, but I assume this swap has payments every 6 months (180 days). If so, the payment at 360 days will be based on the (6-month) LIBOR rate at 180 days: 10%. A will pay to B (11% – 10%) / 2 × $120 million = $0.6 million.

yes you are right. but actually the question never gave anything about swap payment being 6 months or not. But your answer is what is given.

The questions on the real exam won’t lack such essential information.

Thanks S2000magician.yes

My pleasure.