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Market value of the loan

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Bank of America has made a $300 million loan to a software company at a fixed rate of 7%. The bank wants to hedge its exposure by entering into a total return swap with a counterparty, Interloan Co., in which Bank of America promises to pay the interest on the loan plus the change in the market value of the loan in exchange for LIBOR plus 125bp. If after one year the market value of the loan has increased by 1.8% and LIBOR is 5%, what will be the net obligation of Interloan?

Reference no: EM132050562

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