Problem
Sunny Corporation has $1,000,000 in fixed rate debt, with an annual interest rate of 3%, and interest payments due June 30 and December 31 of each year. On January 1, 2023, it entered an 18-month receive fixed/pay variable interest rate swap, where the variable rate is SOFR plus 20 bp. On January 1, 2023, SOFR is 1.6%. On June 30, 2023, SOFR declines to 1.2% and causes the variable rate to be reset at that time. The swap qualifies for hedge accounting.
• How much does Sunny pay or receive to settle the swap for the 6-month period ending June 30, 2023?