An investor has issued a $100 million callable floating-rate security with a 5-year maturity, and 6% cap. The coupon formula for the floater is 6-month LIBOR plus 125 basis points and the interest payments are made semiannually. At the time of issuance, 6-month LIBOR is 1.5%. The investor used the proceeds to invest in a putable 5-year corporate note with a fixed coupon rate of 4%.

Assuming a a swap spread of 50 basis point and the current yield rate for a 1-year, 3-year and 5-year Treasury notes are 1%, 1.5%, and 2% what annual income spread can the investor lock in after entering the swap contract? Report your answer in basis points (i.e. 5% = 500 bps).

What is the answer the last question assuming the current 6-month LIBOR is 5.5%? Report your answer in basis points (i.e. 5% = 500 bps).