C_S4CPS_2008 Exam Questions and Answers

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You are paying 5% per annum paid semi-annually and receiving 6-month LIBOR on a USD 10 million interest rate swap with exactly two years to maturity . 6-month LIBOR for the next payment date is fixed today at 4.95%. You expect 6-month LIBOR in 6 months to fix at 5.25%, in 12 months at 5.35% and in 18 months at 5.40%. What do you expect the net settlement amounts to be over the next 2 years? Assume 30-day months.
A. pay 250, receive 1,250, receive 1,750, receive 2,000
B. pay 2,500, receive 12,500, receive 17,500, receive 20,000
C. receive 2,500, pay 12,500, pay 17,500, pay 20,000
D. receive 250, pay 1,250, pay 1,750, pay 2,000
Answer: B


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