Explanation:
The correct answer is B. Savers Bancorp would receive USD 78,325 on August 9, 2016. This is calculated by determining the net settlement amount based on the 6-month LIBOR rate at February 9, 2016, which is the rate that will yield the payoff on August 9, 2016. Savers Bancorp receives a fixed rate of 4.00% on the notional amount of USD 6.5 million for the 6-month period, which amounts to USD 130,000 (USD 6,500,000 * 4.00% * 0.5). On the other hand, Savers Bancorp pays LIBOR plus 1.20%, which at the 0.39% LIBOR rate for the period results in a payment of USD 51,675 (USD 6,500,000 * (0.39% + 1.20%) * 0.5). The difference between what Savers Bancorp receives and pays is USD 78,325, which is the net amount they would receive.
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On August 9, 2016, what was the total amount received by Savers Bancorp from a 2-year interest rate swap, initiated on August 9, 2014?
The swap involved receiving a fixed rate of 4.00% and paying LIBOR plus 1.20% on a notional amount of USD 6.5 million, with payments being made semi-annually.
Please consider the relevant 6-month LIBOR rates provided for the 2-year duration.
| Date | 6-month LIBOR |
|---|---|
| Aug 9, 2014 | 3.11% |
| Feb 9, 2015 | 1.76% |
| Aug 9, 2015 | 0.84% |
| Feb 9, 2016 | 0.39% |
| Aug 9, 2016 | 0.58% |
A
USD 72,150
B
USD 78,325
C
USD 117,325
D
USD 156,650
