03_interestrateswaps [compatibility mode] 19-20

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19 Synthetic Fixed-Rate Loan 1 2 3 4 5 6 7 8 Swap Swap Swap Loan Synthetic Loan Synthetic Loan Effective Dates LIBOR Floating-Rate Fixed-Rate Net Interest Received Interest Paid on Payment on Swap Effective Payer's Payment* Payer's Payment** by Fixed-Rate Payer Floating-Rate Loan* and Loan Annualized Rate*** Column 3 - Column 4 Column 6 - Column 5 3/1/Y1 0.045 9/1/Y1 0.050 $225,000 $275,000 -$50,000 $225,000 $275,000 0.055 3/1/Y2 0.055 $250,000 $275,000 -$25,000 $250,000 $275,000 0.055 9/1/Y2 0.060 $275,000 $275,000 $0 $275,000 $275,000 0.055 3/1/Y3 0.065 $300,000 $275,000 $25,000 $300,000 $275,000 0.055 9/1/Y3 0.070 $325,000 $275,000 $50,000 $325,000 $275,000 0.055 3/1/Y4 $350,000 $275,000 $75,000 $350,000 $275,000 0.055 * (LIBOR/2)($10,000,000) ** (.055/2)($10,000,000) *** 2 (Payment on Swap and Loan)/$10,000,000

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Interest Rate Swaps

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Page 1: 03_InterestRateSwaps [Compatibility Mode] 19-20

19

Synthetic Fixed-Rate Loan

1 2 3 4 5 6 7 8Swap Swap Swap Loan Synthetic Loan Synthetic Loan

Effective Dates LIBOR Floating-Rate Fixed-Rate Net Inte rest Received Interest Paid on Payment on Swap Effecti vePayer's Payment* Payer's Payment** by Fixed-Rate Paye r Floating-Rate Loan* and Loan Annualized Rate***

Column 3 − Column 4 Column 6 − Column 53/1/Y1 0.0459/1/Y1 0.050 $225,000 $275,000 -$50,000 $225,000 $275,000 0.0553/1/Y2 0.055 $250,000 $275,000 -$25,000 $250,000 $275,000 0.0559/1/Y2 0.060 $275,000 $275,000 $0 $275,000 $275,000 0.0553/1/Y3 0.065 $300,000 $275,000 $25,000 $300,000 $275,000 0.0559/1/Y3 0.070 $325,000 $275,000 $50,000 $325,000 $275,000 0.0553/1/Y4 $350,000 $275,000 $75,000 $350,000 $275,000 0.055

* (LIBOR/2)($10,000,000)** (.055/2)($10,000,000)*** 2 (Payment on Swap and Loan)/$10,000,000

Page 2: 03_InterestRateSwaps [Compatibility Mode] 19-20

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A synthetic floating-rate loan is formed by combining a fixed-rate loan with a floating-rate payer’s position.

� Conventional Fixed-Rate Loan

� Swap: Floating-Rate Payer Position

� Swap: Floating-Rate Payer Position

� Synthetic Floating Rate

� Pay Fixed Rate

� Pay Floating Rate

� Receive Fixed Rate

� Pay Floating Rate