You are a corporate treasurer and you would like to convert the exposure your firm has to a 10 year $100,000,000 bond issue it plans to make in the coming days to a floating rate. This bond will replace all of the firm's long term debt. The bond has a coupon rate of 4.0% paid semi-annually. You have been quoted a Receive Fixed Swap that has the same term and payment frequency with a rate of 3.2%. In exchange for this fixed rate you would be paying 6M LIBOR, semi-annually.
If 6M LIBOR is currently at 0.84% and you enter into the swap, what will the corporation's interest expense for the $100M in long term debt be for the first 6 months?
If 6M LIBOR resets to 1.20% in 6 months and you are in the swap, what will the corporations interest expense for the $100M in long term debt be for the combined 12 month period
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