On December 31, 2020, SSNIT and SIC (non-life) entered into a six year swap arrangement with first payment to be exchanged on December 31st, 2022 and each December 31st thereafter under the following terms: 

• SIC will pay SSNIT an amount equals to 5% per annum on a notional principal of US$50 million. (FIXED Amount) 

• SSNIT will pay SIC an amount equals to one-year LIBOR +1.25% per annum on a notional amount of US$50 million. (Flexible Amount).

• On 31st December 2022, one-year LIBOR is projected to be 2.75%.

I. What will be the payment flows for the first year, December 31st?

II. In the second year, assume LIBOR increased by 0.75% to 3.50%. What will be the payment flows on December 31st 2023?

III. Assume that in the third, LIBOR decreased by 2% +1 in June 2023. What will be the payment flows on December 31at 2023?

Answer rating: 100% (QA)

I For the first year December 31st the payment flows will be as follows SSNIT will pay SIC ... View the full answer