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2. An investment banking firm purchases $100 million of a 10-year (fixed-rate) 8% coupon bond in the secondary market. (a) The firm issues $50 million
2. An investment banking firm purchases $100 million of a 10-year (fixed-rate) 8% coupon bond in the secondary market. (a) The firm issues $50 million of floaters and $50 million of inverse floaters. (The most popular split of floaters and inverse floaters is 50/50.) If the current short-term interest rate in the market is 5.75%, and this is paid on the floating-rate debt, how much coupon interest will be paid on the inverse floaters over the next 6-month period? What is the coupon interest rate on the inverse floaters? (b) Answer the above two questions now assuming that the firm issues $75 million of floaters and $25 million of inverse floaters. 2. An investment banking firm purchases $100 million of a 10-year (fixed-rate) 8% coupon bond in the secondary market. (a) The firm issues $50 million of floaters and $50 million of inverse floaters. (The most popular split of floaters and inverse floaters is 50/50.) If the current short-term interest rate in the market is 5.75%, and this is paid on the floating-rate debt, how much coupon interest will be paid on the inverse floaters over the next 6-month period? What is the coupon interest rate on the inverse floaters? (b) Answer the above two questions now assuming that the firm issues $75 million of floaters and $25 million of inverse floaters
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