The net payment formula for the fixed-rate payer is:

Fixed Rate Payment_t = (Swap Fixed Rate − LIBOR_t-1) × (# days in term / 360) × Notional Principal

If the result is positive, the fixed-rate payer owes a net payment and if the result is negative, then the fixed-rate payer receives a net inflow. Note: We are assuming a 360 day year.

We can manipulate this equation to read:

Swap Fixed Rate = LIBOR_t-1 + [(Fixed Rate Payment / ( # days in term / 360 × Notional Principal)

Note: the Fixed Rate payment will have a negative sign because we are told that RWDY receives a net payment.

= 0.07 + [(-93,750 / (270 / 360 × 25,000,000) = 0.07 − 0.005 = 0.065, or 6.5%.

Note: We know that the Swap Fixed Rate will be less than the floating rate, or LIBOR, because RWDY receives a net payment.