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9. John is under a loan of 10,000 from his bank. Under the loan terms, he will pay annual interest based on LIBOR plus 150
9. John is under a loan of 10,000 from his bank. Under the loan terms, he will pay annual interest based on LIBOR plus 150 basis points. He will repay the original 10,000 after 4 years as a lump sum. To fix the interest rate, John enters into a 4-year swap with Eric, with a notional amount of 10,000 and annual settlement dates. Under the swap terms, John will swap a variable rate of LIBOR plus 20 basis points for a fixed rate of 6.3%. During the 3rd year of the loan, LIBOR is 5.9%. Determine the net swap payment at the end of the 3rd year. A) John will pay Eric 39.8 B) Eric will pay John 39.8 C) Eric will pay John 110.0 D) Eric will pay John 20.0 E) John will pay Eric 20.0
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