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Money Bank has made many long-term, fixed-rate loans at 7% that it kept on its books. Moneys managers are worried about rising interest rates and

Money Bank has made many long-term, fixed-rate loans at 7% that it kept on its books. Moneys managers are worried about rising interest rates and decide to enter a plain vanilla swap by exchanging fixed cash flows for floating cash flows. The floating rate will be based on the Prime Rate plus 2 percentage points. The notional principal amount will be $200,000,000. Fill in the 9 blank cells of the table.

Year 1

Year 2

Year 3

Prime Rate

5%

7%

6%

Floating Rate Received

Fixed Rate Paid

7%

7%

7%

Swap Differential Percentage (Moneys Perspective)

Net Dollars Received (Moneys Perspective)

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