I do not need EXCEL solution. Please don\'t give any solution using EXCEL. Compa

Question

I do not need EXCEL solution. Please don't give any solution using EXCEL.

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.

Explanation / Answer

ABC pays LIBOR+0.5% on debt
ABC pays 3% in swap in 2nd year
ABC receives LIBOR in swap in 2nd year
Net payment=3%+LIBOR+0.5%-LIBOR=3.5%
Hence, net payment=3.5%*2000000=70000

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