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You enter into a seven-year interest rate swap, annually receiving (REF 1.23%) on $20 million (notional) principal. REF is a reference rate associated with one-year
You enter into a seven-year interest rate swap, annually receiving (REF 1.23%) on $20 million (notional) principal. REF is a reference rate associated with one-year loans; the REF rate used for each annual period is that prevailing at year start.
Suppose the reference rate REF takes the value 2.11% in 12 months, 2.01% in 24 months, and 1.62% in 36 months. (Note: interest rates are compounded annually.) What is your cash flow (in dollars, including the sign) from the swap, in 24 months?
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