Question
Suppose that, under the terms of a swap, Citibank as a swap dealer has agreed to receive six-month LIBOR and pay 7% per year on
Suppose that, under the terms of a swap, Citibank as a swap dealer has agreed to receive six-month LIBOR and pay 7% per year on a notional principal of $50 million. The other side of the contract is Unilever. The payments are every six months. The swap has a remaining life of 1.25 years. The appropriate LIBOR discount rates for 3-month, 9-month, and 15-month maturities are 6.5%, 7%, and 7.5%, respectively. The LIBOR rate used for the next payment date was 6% per year. Describe the cash flows of the swap from Citibanks perspective. Particularly, when is the next payment? How much are the next fixed payment and floating payment? What is the next net payment for Citibank?
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