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17. 10 POINTS An investment company holds $10 million of a 5-year $100 million RST bond in its portfolio. The bond pays interest on a

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17. 10 POINTS An investment company holds $10 million of a 5-year $100 million RST bond in its portfolio. The bond pays interest on a fixed rate basis equal to 3.200%. Current 5-year treasury rates are 2.50% and the current 5-year swap spread is 20 basis points. a. To convert the bond payments to a floating rate, the investor should enter into which type of swap and what will be the investor's net floating rate exposure quoted as a spread to Libor? Be specific on fixed and floating payments. Please show boxes and arrows (3 pts). b After six months Libor goes from 2.0% to 2.5%, what will be the investor's interest income for the quarter expressed in dollars(3 pts)? c. After one year, the investment company goes out of business and 4-year interest rate swaps are then 3.7% (this is the combined treasury rate and swap spread). Assuming that there is no collateral posted, what is the present value profit or loss for the bank (4 pts)

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