An Example of an Interest Rate Swap Swap The swap bank makes this offer to bank You Bank 103/8% pay LIBOr-1/8%per year on $10 million for 5 LIBOR-1/8% years and we will pay Bank ou103/8%on$10 A million for 5 years COMPANY B BANK A DIFFERENTIAL Fixed rate 11.75% 10 1.75% Floating rate LIBOR +.5% LIBOR OSD McGraw-Hilylrwoin 10-9 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rightsMcGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 10-9 10 3/8% LIBOR – 1/8% An Example of an Interest Rate Swap Bank A Swap Bank The swap bank makes this offer to Bank A: You pay LIBOR – 1/8 % per year on $10 million for 5 years and we will pay you 10 3/8% on $10 million for 5 years COMPANY B BANK A DIFFERENTIAL Fixed rate 11.75% 10% 1.75% Floating rate LIBOR + .5% LIBOR .5% QSD = 1.25%