Your firm has recently issued some fixed rate debt but would prefer to re-structure the debt using
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Question:
Your firm has recently issued some fixed rate debt but would prefer to re-structure the debt using an interest rate swap to a floating rate of debt because your firm believes rates will be trending downward over the next several years.Listed below are the details for the existing debt and the desired floating debt:
Fixed rate debt:10 percent
Swap payments:LIBOR plus 1 percent
Expected LIBOR rates:
oEnd of Year 1:9 percent
oEnd of Year 2:8.5 percent
oEnd of Year 3:7 percent
After executing the interest rate swap determine the rate your firm expects to pay on its debt over the next 3 years.
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