The Bank of US has negotiated a plain vanilla swap with the Bank of EU – with a notional principal of $10 million. Under

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answerhappygod
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The Bank of US has negotiated a plain vanilla swap with the Bank of EU – with a notional principal of $10 million. Under

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The Bank of US has negotiated a plain vanilla swap with the Bank
of EU – with a notional principal of $10 million. Under the
agreement, the Bank of US will pay fixed payments of 8 percent to
the Bank of EU and receive floating payments equal to (U.S. dollar)
LIBOR plus 2 percent from the Bank of EU at the end of each of the
next five years. At the end of the 1st
year, the LIBOR is 9%. Which bank will pay which bank
and how much? (show your work – only for year 1)
(2.5 points
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