Question
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
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Fixed Rate Paid | 7% | 7% | 7% |
Swap Differential Percentage (Moneys Perspective) |
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Net Dollars Received (Moneys Perspective) |
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