Question
Interest Rate Swaps: An Insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of
Interest Rate Swaps:
An Insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed rate guaranteed investment contracts (GICs) costing 10%. A Finance company has $50 million in auto loans with a fixed rate of 14%. These loans are financed with $50 million in CDs at a variable rate of LIBOR plus 4%.
What would be the cash flows of each company if they enter into a SWAP?
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Bond Markets Analysis and Strategies
Authors: Frank J.Fabozzi
9th edition
133796779, 978-0133796773
