Calculate the net interest payment

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Company ABC has an existing debt of 2,000,000 on which it makes annual payments at an annual effective rate of LIBOR plus .5%. ABC decides to enter into a swap with a notional amount of 2,000,000 on which it makes annual payments at a fixed annual effective rate of 3% in exchange for receiving payments at the annual effective LIBOR rate. The annual effective LIBOR rates over the first and second years of the swap contract are 2.5% and 4.0%, respectively. ABC does not make or receive any other payments. Calculate the net interest payment that ABC makes in the second year.

Reference no: EM131923880

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