A pays the 7% on the notional 1mn every period to B. B pays LIBOR + 1% on that notional 1mn every duration to A. It would have to pay B the 70,000 still, it would certainly pay to B 70,000 but in exchange it would certainly obtain LIBOR + 1% from B. LIBOR is 4%. In period 1, it still pays $80,000 so that we can compose that in every duration In duration 2, it still pays $80,000 and then its going to get 7% every duration from company A So it would obtain $70,000 but its going to be paying LIBOR + 1% So in Duration 1, its going to pay $60,000.
A pays the 7% on the notional 1mn every period to B. B pays LIBOR + 1% on that notional 1mn every period to A. It had to pay in duration 1, comapny A had to pay $70,000 to loan provider 1 but now thats not all it has to do. It would certainly have to pay B the 70,000 still, it would pay to B 70,000 but in exchange it would certainly get LIBOR + 1% from B. LIBOR is 4%. In duration 1, it still pays $80,000 so that we can create that in every period In duration 2, it still pays $80,000 and after that its going to obtain 7% every duration from firm A So it would get $70,000 but its going to be paying LIBOR + 1% So in Period 1, its going to pay $60,000. Net you pay 50, you get 70 so thats a part of, you are still paying 10 and you pay another 60 So net is your going to pay 70k in period 1 and then in duration 2, you” re going to pay 60k So currently Comapny A is paying a fixed 8% every duration.
