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An Italian company, New Century Corp, enters into a 2-year interest rate swap with Northern European...

An Italian company, New Century Corp, enters into a 2-year interest rate swap with Northern European Bank. The notional principle of the swap is €100 million. Payments will be made semiannually on the basis of 180/360 (180 days in the settlement period and 360 days per year). New Century will pay a fixed rate of 5% and receive floating rate Euribor plus 2%. The realization of the 180-day Euribor rates are as below:

Current: 3%             

In 6 months: 2.8%         

In 12 months: 3.4%    

In 18 months: 3.7%

A. Determine the initial exchange of cash that occurs at the start of the swap.

B. Determine the semiannual payments for the first year (first half, second half)    

C. Determine the final exchange of cash that occurs at the end of the swap.

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ekkarill92 answered 2 years ago
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