Jones & Company sold a Bond issue at 10% and it matures in 20 years. Smith Corp. has an Index fund that tracks the S & P 500. They have entered into a 5-year SWAP agreement with a Notional Amount at 2 million dollars. Smith Corp will pay the 10% coupon payments and Jones & Company will pay the yield of the S & P 500 less 350 basis points. If the S & P 500 shows a yield of 14% at the end of the year, what are the payment results of this SWAP at the end of the first year? 

A. Smith Corp pays Jones (the bondholders) $300,000; Jones pays Smith Corp (Index) = $200,000 

B. Smith Corp pays Jones (the bondholders) $200,000; Jones pays Smith Corp (Index) = $300,000 

C. Smith Corp pays Jones (the bondholders) $1,200,000; Jones pays Smith Corp (Index) = $1,300,000 

D. Smith Corp pays Jones (the bondholders) $500,000; Jones pays Smith Corp (Index) = $800,000

Answer rating: 100% (QA)

Solution Smith will pay Jones 1... View the full answer