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On January 1, 2011, Labtech Circuits borrowed $100,000 from First Bank by issuing a three-year, 8% note, payable on December 31, 2013.
On January 1, 2011, Labtech Circuits borrowed $100,000 from First Bank by issuing a three-year, 8% note, payable on December 31, 2013. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2011, and designated the swap as a fair value hedge. The agreement called for the company to receive payment based on an 8% fixed interest rate on a notional amount of $100,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on December 31 of each year.Floating (LIBOR) settlement rates were 8% at inception and 9%, 7%, and 7% at the end of 2011, 2012, and 2013, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows:Dec.31----------------------------------2013------------------------------------------------------------Fair value of interest$0Fair value of $100,000 $98,241 $100,935 $100,000Question: Calculate the net cash settlement at the end of 2011, 2012, and 2013
