1. A company has issued floating-rate notes with a maturity of one year, an interest rate of...

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1. A company has issued floating-rate notes with a maturity of one year, an interest rate of Libor plus 125 basis points, and total face value of $50 million. The company now believes that interest rates will rise and wishes to protect itself by entering into an interest rate swap. A dealer provides a quote on a swap in which the company will pay a fixed rate 6.5% and receive Libor. Interest is paid quarterly, and the current Libor is 5%. Indicate how the company can use a swap to convert the debt to a fixed rate. Calculate the overall net payment (including the loan) by the company. Assume that all payments will be made on the basis of 90/360.

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Derivatives

ISBN: 9781119850571

1st Edition

Authors: CFA Institute

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