CFA CFA Level 1 Question of the Week – Derivatives

Question of the Week – Derivatives

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    • AdaptPrep
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      Haspiess Systems, Inc. and
      Signicomp Manufacturing enter into a netted interest rate swap, with a notional
      $75M. Haspiess will pay a fixed 5%, and Signicomp will pay LIBOR + 75bp. LIBOR
      is 3.5%. The first semiannual payment will be closest to:

      • Haspiess paying Signicomp $600,000
      • Signicomp paying Haspiess $600,000
      • Haspiess paying Signicomp $300,000
    • AdaptPrep
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      The amount Haspiess owes is
      0.5 * $75,000,000 * 5% = $1,875,000.

      The amount Signicomp owes is
      0.5 * $75,000,000 * (3.5% + 0.75%) = $1,593,750.

      The net payment will be
      Haspiess paying Signicomp $281,250.

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