Google Inc, and Facebook Inc, would like to enter into a SWAP contract. Google Inc, pays on a $200 million dollars loan a fixed interest rate 6%. Facebook Inc., pays on a $ 200 million LIBOR + 0.30%.

• Google would like to exchange the fixed to variable interest rate because they expect that interest rates in the future will decline.
• Facebook would like to exchange the variable interest rate into fixed interest rate because they expect that interest rate in the future will increase.

(A) Fill in the table below the Cash flows of Google Inc., which will occur during the three years’ life and the terms of the contract (Assume fixed interest rate under the terms of the SWAP is 6%)

Date	LIBOR	Floating Cash Flow	Fixed Cash Flow	Net Cash Flow
Mar 5, 2013	5.40%
Sep 5, 2013	5.60%
Mar 5, 2014	5.30%
Sep 5, 2014	5.50%
Mar 5, 2015	5.60%
Sep 5, 2015	5.20%
Mar 5, 2016	5.80%

 

(B)  Design the SWAP diagram between Google Inc, and Facebook Inc, assuming the financial intermediary will accumulate total net fees of 0.40% (i.e.: The financial intermediary will charge Google 0.20% fees and will also charge Facebook 0.20% as fees)-Under the terms of the SWAP the fixed interest rate is 6% and variable interest rate is LIBOR.