1. Why might a company swap a floating rate liability to a fixed rate?
2. What is meant by notional amount in a swap?
3. A company has 10 year floating rate debt at Libor + 50 bps. The current 10-year treasury is 4.50% and 10-year swap spreads are T +40 versus Libor. What rate can the company lock in for the 10-year debt?
4. An investor owns a 5-year fixed-rate bond that yields T + 70. The swap market will receive T + 50 versus Libor. The current 5-year treasury is 5%. How can the investor use a swap to convert the interest income to a floating rate asset?
5. A company has a fixed rate note that pays 6% for 3-years. The swap market will pay T + 45 versus Libor. The current 3-year treasury is 4.5%. How can the company use a swap to convert the interest payments to a floating rate liability?
6. A bank will receive T+50 versus Libor or pay T+45 versus Libor. For a $100 million, 10-year swap what is the approximate profit that a bank earns by entering into both a fixed rate and an offsetting floating rate swap?