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Cash flow for helman bank

Helman Bank has made a loan of USD 300 million at 6.5% per annum. Helman enters into a total return swap under which it will pay the interest on the loan plus the change in the marked-to-market value of the loan, and in exchange Helman will receive LIBOR + 50 basis points. Settlement payments are made semiannually. What is the cash flow for Helman on the first settlement date if the mark-to-market value of the loan falls by 2% and LIBOR is 4%?

A. Net inflow of USD 9.0 million

B. Net inflow of USD 12.0 million

C. Net outflow of USD 9.0 million

D. Net outflow of USD 12.0 million

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Finance Basics: Cash flow for helman bank

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Solution Preview :

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