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A manager enters a swap contract where he will receive variable payments based on the LIBOR (London Interbank Offered Rate) in exchange for paying a
A manager enters a swap contract where he will receive variable payments based on the LIBOR (London Interbank Offered Rate) in exchange for paying a fixed rate of 6%. The payments are based on a notional amount of $10 million. They will be exchanged every year for the next 4 years. If LIBOR turns out to be 7% in one year, what will be the profit/loss of the manager at that time?
CHOICES:
$100,000 profit
$94,340 profit
$94,340 loss
$100,000 loss
None of the above
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