Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A year ago, a bank entered into a $57 million five-year interest rate swap. It agreed to pay company A each year a fixed rate

A year ago, a bank entered into a $57 million five-year interest rate swap. It agreed to pay company A each year a fixed rate of 4% and to receive in return LIBOR. When the bank entered into this swap, LIBOR was 5%, but now interest rates have risen, so on a four-year interest rate swap the bank could expect to pay 4.5% and receive LIBOR.

Suppose that at this point company A approaches the bank and asks to terminate the swap. If there are four annual payments still remaining, how much should the bank charge A to terminate? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)

******$285,000 IS NOT THE CORRECT ANSWER********

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Innovation And Technology

Authors: Nikos Vernardakis

1st Edition

0415676800, 978-0415676809

More Books

Students also viewed these Finance questions

Question

For the function f(x, y) = 2xy 2 , find f(x + h,y)-f(x, y) h

Answered: 1 week ago