Hi, in Pault question b) ii.
Can you explain to me how the interest payment liability works? I do not know where do they get the figures in the yield interests of 2.9% and 4.5%.
Thank you v much.
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pault - interest rate swaps
6y ago#1In future, please state which exam the question is from - I cannot remember the name of every question in every exam :-). (This question is from the December 2016 exam).
If the yield interest is 2.9%, then on the borrowing they will pay interest of 2.9 + 0.5 = 3.4%. $400M x 3.4% = $13.60
The swapping will mean that they receive interest at 2.9 - 0.2 = 2.7%.
$400M x 2.7% = $10.80M
They will also pay interest on the swap of 4.847% (per the question). 4.847% x $400M = $19.39M
Finally, they will pay bank changes of 0.25%. $400M x 0.25% = $1M.
It is the same workings when using yield interest of 4.5%.
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