You are the treasurer of a Golden Eagle Corporation that, one year...
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You are the treasurer of a Golden Eagle Corporation that, one year...
You are the treasurer of a Golden Eagle Corporation that, one year ago, funded an investment project by raising $500 in debt. The corporation issued (sold) $500 million of 3-year floating-rate notes with a total annual coupon-interest of (6-month SOFR + 40 bps). The coupon interest is paid semi-annually (that is, the corporation pays one-half of the total annual interest payment every 6 months). You become concerned that interest rates will rise substantially and wish to convert the remaining 2-year floating-rate (that is, variable-rate) loan into a 2-year fixed rate loan. You can enter a 2-year swap in which the fixed rate payer pays the fixed rate of 2.60% and the floating-rate payer pays the 6-month SOFR rate. The net payments on the swap will occur semi- annually exactly on the same days that your corporation has to pay interest on its floating-rate loan. How can you convert your corporation's floating-rate loan into a synthetic fixed rate loan? What is the annual interest rate that your corporation will pay on its synthetic fixed rate loan?
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Answered by ColonelFrogMaster729 on coursehero.com
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