Question
On December 31, 2020 Sona Energy and TOR entered into a six-year Swap with payments to be exchanged annually on December 31st under the following
On December 31, 2020 Sona Energy and TOR entered into a six-year Swap with payments to be exchanged annually on December 31st under the following terms: Sona Energy will pay TOR an amount equal to 5% per annum on a notional principal of US$50 million. TOR pays Sona Energy an amount equals to one-year LIBOR +1.25% per annum on a notional amount of US$50 million. On December 31st 2020, one-year LIBOR was 2.75%.
i. What will be the payment flows for the first year?
ii. In the second year, assume LIBOR increased by .75% to 3.50%. What will be the payment flows on December 31st 2022?
iii. Assume that in the third year, LIBOR decreased to 2% +1 in June 2023. What will be the payment flows on December 31st 2023?
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