Swaps

[theCFAway]

Concept Checkers on page 248 of book 4. I’m not understanding why the answer is choice C below. Why is LIBOR positive when the firm will be paying LIBOR?
4. A firm issues fixed-rate bonds and simultaneously becomes a fixed-rate receiver
counterparty in a corresponding plain vanilla interest rate swap. Which of the
following best describes the subsequent, effective periodic interest payments of
the firm? (SFR = swap fixed rate)
A. SFR- [LIBOR- (fixed rate on debt)].
B. LIBOR- [(fixed rate on debt) - SFR].
C. LIBOR- [SFR- (fixed rate on debt)].

 

[cpk123]

draw a diagram
it becomes clear
Firm -> Fixed Rate on debt
Firm
-> Pays LIBOR
So Net pay = LIBOR + Fixed Rate on Debt - SFR or LIBOR - (SFR-Fixed Rate on Debt)

 

[ftwcfa]

Firm pays:
LIBOR + Fixed Rate of Debt
Firm recieves:
SFR
Total of what firm pays:
LIBOR + Fixed Rate on Debt - SFR = LIBOR- [SFR- (fixed rate on debt)]

 

[theCFAway]

i see. i misinterpreted the question. I see that it’s asking for the amount paid and not the net profit. it’s little words that trip me up. thanks!