2. The Carlton fund has created the following issue of bonds to raise funds to invest in other securities (assume the 10 year Treasury is 8.2% at issuance) Par Value (US $ millions) Tranche Senior Coupon Rate Libor +50 bps 120 Mezzanine 15 10 year Treasury Rate +150bps Subordinated 10 a. Why would Carlton desire to enter into an interest rate swap? b Assume Carlton enters into an interest rate swap with a counterparty. One side agrees to pay fixed 10 year Treasury + 220bps , the other to pay a variable rate of Libor + 10 bps Compute the rate if possible What would Carlton agree to pay the counterparty? What would Carlton receive from the counterparty? 2. The Carlton fund has created the following issue of bonds to raise funds to invest in other securities (assume the 10 year Treasury is 8.2% at issuance) Par Value (US $ millions) Tranche Senior Coupon Rate Libor +50 bps 120 Mezzanine 15 10 year Treasury Rate +150bps Subordinated 10 a. Why would Carlton desire to enter into an interest rate swap? b Assume Carlton enters into an interest rate swap with a counterparty. One side agrees to pay fixed 10 year Treasury + 220bps , the other to pay a variable rate of Libor + 10 bps Compute the rate if possible What would Carlton agree to pay the counterparty? What would Carlton receive from the counterparty