Suppose That for the Next Five Years Party X Agrees

Multiple Choice

Suppose that for the next five years party X agrees to pay party Y 10% per year, while party Y agrees to pay party X six-month LIBOR (London Interbank Offered Rate) , which is 7.5%. Party X is a fixed-rate payer / floating-rate receiver, while party Y is a floating-rate payer / fixed-rate receiver. Assume that the notional principal amount is $100 million, and that payments are exchanged every six months for the next five years. What will party X pay party Y every six month?

A) $3,750,000
B) $5,000,000
C) $6,250,000
D) $7,000,000