1. A bank enters into an interest rate swap making annual fixed rate payments of 8% and receiving a floating rate equal to LIBOR + 2%. The notional principal on the swap is $10 million. What is the first net payment under the swap if LIBOR is 7%?
A. bank pays $100,000 B. bank receives $100,000 C. bank pays $300,000 D. bank receives $300,000
2. A bank enters into an interest rate cap with a ceiling of 12%. The notional principal is $50 million, and LIBOR is the index used to represent current interest rates. What is the first year's payment if LIBOR is 9%?
A. Bank pays $1.5 million. B. Bank receives $1.5 million. C. $0. D. Bank receives $3 million.