Question
Please provide all your work on the calculations. Except where otherwise specified, all interest rates are stated as annual rates. Q1. A company has a
Please provide all your work on the calculations.
Except where otherwise specified, all interest rates are stated as annual rates.
Q1. A company has a 4 years remaining on a 15-year $12 million loan with an interest rate of 6%. The loan is fully amortized with equal annual payments (interest and principal) of $1,266,005. The company would like to swap the interest portion of the next 4 years of loan payments for a floating rate based on the 1-year LIBOR rate. The expected 1-year LIBOR rates in years 1-4 are: 1.271%, 1.440%, 1.651%, and 2.041%. The 4-year risk free interest rate is 1.675%. What are the terms of a swap that will accomplish the companys objectives?
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