Fearing that market interest rate will fluctuate, Bethlehem with credit rating of Baa decides to engage in
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Fearing that market interest rate will fluctuate, Bethlehem with credit rating ofBaadecides to engage in an interest rate swaps for their 100 million variable debt with US steel in January 1, 2017. US steel, with credit rating ofAaa, has long term fixed debt of $100 million at the time of transaction. According to the swaps contract, Bethlehem will pay 8 percent interest rate to US steel and, in turn US steel pays T-bill minus 0.25% to Bethlehem steel. At the time of swap transaction bond market quotes the following interest rates for these two credit ratings on annual basis.
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