Notional principal amount

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Notional principal amount

In an interest rate swap, the predetermined dollar principal on which the exchanged interest payments are based.

Notional Principal Amount

In an interest rate swap, the arbitrary amount over which interest is calculated. Suppose the two legs of the swap are a fixed interest rate, say 3.5%, and a floating interest rate, say LIBOR + 0.5%, and the notional principal amount is $1 million. In such a swap, the only things traded are the two interest rates, which are calculated over the notional principal amount. That is, the $1 million is never exchanged, but the interest is calculated with reference to it. For example, the fixed interest is 3.5% of $1 million (or $35,000). It is also called the notional value.
References in periodicals archive ?
Assume equal notional principals and denote the risk premiums and expected survival rates for such cohorts by [[pi].
On each of the payment dates, t, the contract calls for the fixed-rate payer to pay the notional principal multiplied by a fixed proportion (1 + [pi]) H(t) to the floating-rate payer and to receive in return the notional principal multiplied by S(t).
The second enters into a portfolio of k annual survivor forward contracts, each of which requires payment of the notional principal multiplied by (1 + [[pi].
from which it follows that the fair value in a floating-for-floating basis swap requires one party to make payments determined by the notional principal multiplied by [S.
Thus, in the case of a floating-for-floating cross-currency basis swap, on each payment date, n, one party will make a payment of the notional principal multiplied by [S.
Thus, if the notional principal were $1 million and the time frame were 1 year, a long position in a December futures contract at a price of [pi] = 3 percent would notionally commit the holder to pay $1.