Question
Silverman Sachs has entered into a five year SWAP contract agreeing to pay a fixed rate of 4.75% per year and receive LIBOR in return.
Silverman Sachs has entered into a five year SWAP contract agreeing to pay a fixed rate of 4.75% per year and receive LIBOR in return. Silverman Sachs can purchase Government bonds with a coupon of 4.63% per year and the purchase of the Government bonds can be financed at the REPO rate (floating rate). The REPO rate is set to LIBOR 12 bps. Can Silverman Sachs make an arbitrage profit (ignore transaction costs?
Group of answer choices
No, they would lose 13bps.
No, the SWAP is correctly priced.
Yes, they would make 12bps.
Yes, they would make 13bps.
none of the above.
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Personal Finance
Authors: Jack Kapoor, Les R. Dlabay, Robert J. Hughes
2nd Edition
0256079056, 9780256079050
