Question
Suppose that Microsoft owns $100 million bonds that will provide interests at 4.3% per annum and Intel has an investment that yields LIBOR 0.3% per
Suppose that Microsoft owns $100 million bonds that will provide interests at 4.3% per annum and Intel has an investment that yields LIBOR 0.3% per annum. Cash flows are made every 6 months and these investments last for two years. These two firms are studying the risks associated with their investments and expect that swaps can be used to hedge these risks. Which of the following statements is the most accurate?
A. Both firms may have interest rate risks and Microsoft should be the floating-rate payer in the swap.
B. Both firms may have default risks and Intel should be the floating-rate payer in the swap.
C. Both firms may have interest rate risks and Microsoft should be the fixed-rate payer in the swap.
D. Both firms may have default risks and Intel should be the fixed-rate payer in the swap.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started