Prepare a spreadsheet that shows the payments and receipts of BOTH parties, for the swap and for the position on their books, and for BOTH interest rate scenarios.

Two parties enter into a swap with the following parameters:

Term/Tenor 3 years

Fixed Rate: 3.00%

Floating rate: 3-month LIBOR

Payment Frequency: 2 (semi-annually)

Notional Amount: $50,000,000

LIBOR at initiation: 2.00%

LIBOR in future:

1. assume LIBOR increases by 0.20% (20 bp) every 6 months

2. assume LIBOR decreases by 0.20% (20 bp) every 6 months

Party A is the fixed rate payer. A’s books show it has borrowed using a floating rate note in the amount of $50,000,000 with interest at 3-month LIBOR. The proceeds are invested in a fixed rate asset that pays a fixed rate of 3.50%

Party B is the floating rate payer. B’s books show it has a floating rate investment in the amount of $50,000,000 that pays 3-month LIBOR but is funded by fixed rate debt at 2.50%.