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A company currently has an outstanding 3-year loan with XYZ Bank with an interest rate at the variable Prime rate plus 2.00%. If the company
A company currently has an outstanding 3-year loan with XYZ Bank with an interest rate at the variable Prime rate plus 2.00%. If the company wants to eliminate uncertainty about future interest rate payments on the loan but does not want to repay the loan early, what is the best type of financial contract to accomplish this? Would it be an interest rate swap to pay fixed for the prime rate or An interest rate swap to pay the primate rate for fixed? Can you explain? I believe that we are trading the variable for fixed.
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