Consider an investor with a

$60

million investment in a bond portfolio with a duration of 6 . The portfolio pays a

5%

coupon rate and\ three-year swap contracts are available at a fixed swap rate of

5.1%

and a floating rate of SOFR +225 basis points. Draw the diagram for\ this investor who is super concerned about an interest rate increase over the next 3 years (include the full bond investment as the notional\ principle in your diagram).\ Select only 1 of the following 2 possible SOFR rates occurring at the end of year 1 and explain if the bondholder benefits or suffers for\ that first net payment: Either

1.6%

or

5.8%

.

2. Consider an investor with a $60 million investment in a bond portfolio with a duration of 6 . The portfolio pays a 5% coupon rate and three-year swap contracts are available at a fixed swap rate of 5.1% and a floating rate of SOFR +225 basis points. Draw the diagram for this investor who is super concerned about an interest rate increase over the next 3 years (include the full bond investment as the notional principle in your diagram). 3. Select only 1 of the following 2 possible SOFR rates occurring at the end of year 1 and explain if the bondholder benefits or suffers for that first net payment: Either 1.6% or 5.8%