Company B sells a 10-year fixed rate bond at 8%. At the same time of the issue, the company buys a receiver swaption with 5 years remaining to expiration, 2.5% premium. Fill in table below assuming the exercise of the swaption.

Year	Company pays to bond holders	Company pays to swaption	Company receives from swaption	Net cost to company
1
2
3
4
5
6
7
8
9
10

Explain the net effect to bond holders.

Explain the net effect to the company issuing the bond.

If you were a corporate treasurer, would you follow example in exercise 1 or exercise 2? Why, explain.