Set up a schedule showing the net receipts or payments

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Reference no: EM13519277

Leeson Company entered into an interest rate swap with Morley Corporation on January 1, 2003. The notional amount of the swap is $20,000,000. Leeson will pay Morley a fixed annual rate of 8 percent. Morley will pay Leeson LIBOR plus 1 percent. Settlement is to be made every six months and the contract lasts for three years. The annual variable rates based on LIBOR plus 1 percent are:

July 1, 2003

8.26%

January 1, 2004

8.32%

July 1, 2004

8.18%

January 1, 2005

7.92%

July 1, 2005

7.90%

January 1, 2006

8.06%

Required:

a. Set up a schedule showing the net receipts or payments for Leeson.

b. Why would Leeson enter into a strategy of this type?

c. Has Leeson benefited from this transaction?

What dangers are present?

Reference no: EM13519277

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