Question 28

Fantasy Inc. and Kids Wheel, both hypothetical toy companies, initiated a three-year interest rate swap contract on January 20th, 2000. Under the terms of the swap contract Fantasy Inc is agreed to pay Kids Wheel an interest of 8% per annum on a notional principle of $600 million, and in return Kids Wheel agrees to pay a six-month LIBOR rate on the same principal. In addition, the payments are exchanged semi-annually, and the 8% is quoted with semiannual compounding. First two columns of the following table show the LIBOR rate quotes over the life of the swap contract. Using all the given information, complete Columns 3-5 of the table and fill all the blanks.

Please note that your answer must be ONE DECIMAL place.

Kids Wheel Cash Flows Schedule (in millions)

Dates

6-month LIBOR (%)

CF Received

CF Paid

Net CF

Jan 20, 2000

7.0

June 20, 2000

7.2

Jan 20, 2001

7.6

June 20, 2001

7.7

Jan 20, 2002

8.0

June 20, 2002

8.1

Jan 20, 2003

8.0

Pantry Ine and Kid Wheel, both hypothetical systed here you want, 2000. of 8 por nu mai ple of 500 million and in de were to pay DLAHOR with manual compoundwo come of the towing the whow the lewer the other the Please note that your new must be ON DECIMAL place Date Kids Who how schedulen min CF Received CH month LIBOR C%) 7.0 Jam 20 2000 June 20, 2000 7.6 Jan 20, 2001 June 20, 2001 7.7 8.0 20, 2002 8.1 June 20. 2002 8.0 Jan 20, 2003