Assume That the Swap Is for Two Years and That

Assume that the swap is for two years and that LIBOR is 5.25 percent in year one and 6.25 percent in year two. What will be the net swap cash flow each year if the notional value of a swap is $100 million?

A) The thrift pays $0.75 million to the bank in year one and receives $0.25 million from the bank in year two.
B) The thrift receives $0.75 million from the bank in year one and pays $0.25 million to the bank in year two.
C) The thrift pays $0.25 million to the bank in year one and receives $0.75 million from the bank in year two.
D) The thrift receives $0.25 million from the bank in year one and pays $0.75 million to the bank in year two.
E) None of the above.

Correct Answer:

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