Starbucks Co. that has issued floating-rate notes now believes that interest rates will rise.

Starbucks Co. that has issued floating-rate notes now believes that interest rates will

rise. It decides to protect itself against this possibility by entering into an interest

rate swap with a dealer. In this swap, the notional principal is $25 million and the

company will pay a fixed rate of 5.5 percent and receive LIBOR. The current LIBOR

is 5 percent. Calculate the interest payment and indicate which party (Starbucks or the

dealer) pays which. Assume that

floating-rate payments will be made on the basis of

90/360 and fixed-rate payments will be made on the basis of 90/365.