Hi,
Pg495 of SS15 in CFAI.
Q1 - Firm issues 1yr FRN Libor+1.25%, face $50m. Enters into a swap paying 6.5% fixed and receiving Libor (L). Interest paid Q’ly, current L=5%.
Indicate how the firm uses the swap to convert debt to fixed rate.
Calculate overall net pmt including the loan by the company, assuming all pmts are 90/360 basis.
So having entered into a swap to receive L and pay 6.5, and existing debt is L+1.25% , the company has effectively got a fixed rate debt of 7.25%, which on a Q’ly basis is 7.75/360*90*50mio = $968,750 per Q, so a total of $3,875,000 for the maturity of the swap.
The official answer only mentions the one Q’ly payment - even though the Q asks for “overall net pmt” - I would think when they say overall - it means total? Am i wrong to assume this?