A company issues an inverse floating-rate note with a face value of $30 million and a coupon
Question:
A company issues an inverse floating-rate note with a face value of $30 million and a coupon rate of 14% minus Libor. It uses the proceeds to buy a bond with a coupon rate of 8%.
A. Explain how the company would manage the risk of this position using a swap with a fixed rate of 7%, and calculate the overall cash flow given that Libor is less than 14%.
B. Explain what would happen if Libor exceeds 14%. What could the company do to offset this problem?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Question Posted: