Risk averse entered into swap agreement

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Reference no: EM131879563

Risk Averse Company issued 5-year bonds to Safe Bank for $1,800,000 on Jan 1, 2010 with interest payable each year. The bonds were set up as floating rate debt. The floating rate is to be reset each year to LIBOR plus 2. 5% . On the same date, January 1, 2010, Risk Averse entered into a swap agreement with Speculative Bank because they wanted fixed rate interest payments. On January 1 2010 the LIBOR was 6% and the fixed rate on the swap was set at 8.5% 19. If LIBOR is 5% for year 2 which of the following will be the settlement for year 2? A. Risk Averse Company will pay $18,000 to Speculative Bank B. Speculative Bank will pay $18,000 to Risk Averse Company C. The settlement would be zero D. Risk Averse will settle with Safe Bank for $4,500.

Reference no: EM131879563

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