Question
You consider buying a 5-year floating rate note (FRN), maturing on 12/31/2023 and paying coupon six months at the rate equal to the 6-month LIBOR
You consider buying a 5-year floating rate note (FRN), maturing on 12/31/2023 and paying coupon six months at the rate equal to the 6-month LIBOR rate plus 50 basis points, reset every six months.
Explain briefly how you can use the 5-year swap to convert the FRN into a fixed coupon bond. By doing so, what will be the effective coupon rate?
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Essentials Of Corporate Finance
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan
9th International Edition
1259254801, 9781259254802
