Dickey Bank anticipates an increase in interest rates in 2016 and has therefore decided to engage in an interest rate swap in which it pays 3% over a notional principal of $4 million annually. Fuller Finance Company pays Dickey Bank the interest income generated by applying the T-bill rate plus 2%.

Can you determine if the income gap of Dickey Bank is negative or positive? Determine the amount paid by each institution if the T-bill rate is 0.5% or 1.5%

Answer rating: 100% (QA)

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