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HobbyHorse Syndicate has entered into a "plain-vanilla" interest rate swap on $100,000,000 notional principal. HobbyHorse receives a fixed rate of 7.5% on payments that occur every six months. The floating rate payment is based on LIBOR (currently at 6.75%). Because of the volatile interest rate environment, HobbyHorse has created a reserve to cover any cash outlay required at settlement dates. At the time of the next payment (due in exactly six months), the reserve balance is $250,000. To fulfill its obligations under the swap at the next payment date, HobbyHorse will need approximately how much additional cash? A. $0. B. $375,000. C. $125,000. |