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What is the derivative asset or liability on december

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Problem 1: On January 1, 2014, Rachelle Company received a four-year P5,000,000 loan with interest payment occurring at the end of each year and the principal to be repaid on December 31, 2017. The interest for 2014 is the prevailing market rate of 10% on January 1, 2014, and the market interest rate every January 1 resets the variable rate of interest for that year. The "underlying" fixed interest rate is 10%. In conjunction with the loan, the entity entered into a "receive variable, pay fixed" interest rate swap agreement as cash flow hedge. The interest swap payment will be made on December 31 of each year. The market rate of interest is 6% on January 1, 2015 and 7% on January 1, 2016. Round off present value factor to two decimal places. What is the derivative asset or liability on December 31, 2015?

a. 261,000 asset
b. 271,500 asset
c. 261,000 liability
d. 271,500 liability

Reference no: EM132819309

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