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Swaps

Forums › Ask CIMA Tutor Forums › Ask CIMA P3 Tutor Forums › Swaps

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by Ken Garrett.
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  • October 30, 2019 at 1:22 am #551177
    ishan777
    Member
    • Topics: 5
    • Replies: 2
    • ☆

    P3 mock question help

    H has a loan borrowed at LIB+4%
    H would prefer fixed rate at 8%

    J pays fixed at 9%
    Prefers to pay variable at LIB+1%

    Bank will require 10% of savings from the swap, H and J will share the remaining equally.
    Calculate Hs effective rate of interest as a result.

    I found the spread here as 2% but do not know how to proceed further.
    Please assist.

    October 30, 2019 at 11:11 am #551228
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10589
    • ☆☆☆☆☆

    Now they pay L + 4 + 9 = L + 13

    After swap they would pay 8 + L + 1 = L + 9

    Saving is 4%, of whichmthe bank wants 10%, so net is 3.6, or 1.8 each.

    Therefore, H will pay 8 – 1.8 = 6.2.

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