Question

On January 15th 2019 Snow Limited and Flood Limited agreed on a 1 year swap with...

On January 15th 2019 Snow Limited and Flood Limited agreed on a 1 year swap with quarterly settlement and the swap rate at 7% p.a. on notional principal of $1m. Snow Limited is the payer. The floating rate was set at BBSW which was 8% p.a. on January 15, 8.5% in April, 7% in July, 6.5% in October and 5% in January 2020.

Calculate the swap cash settlements between the two parties over the life of the swap. Assume an equal number of days in each quarter of the year.

Homework Answers

Answer #1
Quater Swap Rate BBSW Rate Rate Difference Months Amount Difference Paid by
Jan 15 to March 31 7% 8% 1% 2.5

1000000 * 1% * ( 2.5 / 12 )

= 2083.33

Flood Limited
Apr - June 7% 8.5% 1.5% 3

1000000 * 1.5% * ( 3 / 12 )

= 3750

Flood Limited
July-Sept 7% 7% 0 3

1000000 * 0% * ( 3 / 12 )

= 0

-
Oct - Nov 7% 6.5% -0.5% 3

1000000 * (-0.5%) * ( 3 / 12 )

= - 1250

Snow Limited
Jan1 - Jan 15 7% 5% -2% 0.5

1000000 * (-2%) * ( 0.5 / 12 )

= - 833.33

Snow Limited
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