Final answer:
In the interest rate swap contract, Taylor's Company will receive a fixed payment of $225,000 and will pay a floating payment of $300,000 in 6 months. Therefore, the net cash flow for Taylor's Company will be a payment of $-75,000 to John's Company.
Step-by-step explanation:
Interest Rate Swap Cash Flows
In an interest rate swap, two parties agree to exchange one stream of interest payments for another, over a set period of time. Taylor's Company receives a fixed interest rate of 4.5% per year, compounded semi-annually on a notional amount of $10,000,000, while paying a floating interest rate to John's Company.
For the cash flow in 6 months, we calculate the fixed payment Taylor's Company will receive and the floating payment they will pay based on the given interest rates:
- Fixed payment received: The fixed semi-annual payment is calculated as $(10,000,000 \times \frac{4.5\%}{2}) = $225,000
- Floating payment made: The floating semi-annual payment, with the floating rate observed to be 6% compounded semi-annually, is calculated as $(10,000,000 \times \frac{6\%}{2}) = $300,000
The net cash flow for Taylor's Company in 6 months is the fixed payment received minus the floating payment made, which is $225,000 - $300,000, resulting in a net payment of $-75,000 from Taylor's Company to John's Company.