A financial institution has entered into an interest rate


Question: A financial institution has entered into an interest rate swap in which it receives 10% per year with semiannual compounding and pays 6-month LIBOR on a principal of $10 million for five years. Payments are made every six months. The current 6-month LIBOR rate is 8% per year with semiannual compounding. What is the net cash flow of the swap to the financial institution in six months?

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Finance Basics: A financial institution has entered into an interest rate
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