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Swap exists trading floating rate payments

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Reference no: EM132460420

Problem: Lara O'Brien, the treasurer of CB Solutions, believes interest rates are going to rise, so she wants to swap her future floating rate interest payments for fixed rates. At present she is paying LIBOR + 1.5% per annum on $5,000,000 of debt for the next two years, with payments due semiannually. LIBOR is currently 5.00% per annum. Ms. O'Reilly has just made an interest payment today, so the next payment is due six months from today.

A swap exists trading floating rate payments (the LIBOR rate) for fixed payments of 7.23% per annum.

If LIBOR rises at the rate of 50 basis points per six month period, starting today, how much does Ms. O'Brien save or cost her company by making this swap for the two years total? (In this case you may ignore TVM.)

Reference no: EM132460420

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