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A company can issue CP (commercial paper) at LIBOR plus 0.3% on a semi-annual compounding basis. Use the quotes in Table 5.5 to create a
- A company can issue CP (commercial paper) at LIBOR plus 0.3% on a semi-annual compounding basis. Use the quotes in Table 5.5 to create a trade that converts their floating rate borrowing program to a ten-year fixed-rate borrowing. What is the fixed rate achieved? Is this truly a fixed rate?
Table 5.5 Swap Quotes Made by a Market Maker (percent per annum) Maturity (years) Bid Offer Swap Rate 2. 2.55 2.58 2.565 3 2.97 3.00 2.985 4 3.15 3.19 3.170 5 3.26 3.30 3.280 7 3.40 3.44 3.420 10 3.48 3.52 3.500 Table 5.5 Swap Quotes Made by a Market Maker (percent per annum) Maturity (years) Bid Offer Swap Rate 2. 2.55 2.58 2.565 3 2.97 3.00 2.985 4 3.15 3.19 3.170 5 3.26 3.30 3.280 7 3.40 3.44 3.420 10 3.48 3.52 3.500
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