Boeing has entered into a 10 year interest rate swap with Bank America with a no
ID: 2769702 • Letter: B
Question
Boeing has entered into a 10 year interest rate swap with Bank America with a notional principal of $500 million. Boeing has agreed to pay LIBOR – the floating rate side of the swap. Bank America has agreed to pay a fixed rate of 7%. Assume that next year, LIBOR is 6.25%. The net payment at that date will be:
Bank America pays Boeing $750,000
Boeing pays Bank America $3,750,000
Boeing pays Bank America $750,000
Bank America pays Boeing $3,750,000
Bank America pays Boeing $503,750,00.
Bank America pays Boeing $750,000
Boeing pays Bank America $3,750,000
Boeing pays Bank America $750,000
Bank America pays Boeing $3,750,000
Bank America pays Boeing $503,750,00.
Explanation / Answer
Notional princpal = 500
Boeing to bank america = 6.25% i.e. LIBOR
bank america to boing = 7%
Answer
Bank america will pay to boing = 500*(7%-6.75%)
= 3750000