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Astra has issued an 8% fixed-rate debt security whereas Pfiz has sold bonds paying LIBOR + 1% instead. The companies now would like to offset their risks - Astra is afraid that interest rates will go down and Pfiz is worried that they will go up. Explain how a dealer could set up a swap agreement that meets the goals of both companies and at the same time generates a profit for themselves equal to 0.50% of the notional involved. [

Astra has issued an 8% fixed-rate debt security whereas Pfiz has sold bonds paying LIBOR + 1% instead. The companies now would like to offset their risks - Astra is afraid that interest rates will go down and Pfiz is worried that they will go up. Explain how a dealer could set up a swap agreement that meets the goals of both companies and at the same time generates a profit for themselves equal to 0.50% of the notional involved. [

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Astra has issued an 8% fixed-rate debt security whereas Pfiz has sold bonds paying LIBOR + 1% instead. The companies now would like to offset their risks - Astra is afraid that interest rates will go down and Pfiz is worried that they will go up. Explain how a dealer could set up a swap agreement that meets the goals of both companies and at the same time generates a profit for themselves equal to 0.50% of the notional involved. I
Transcribed Image Text:Astra has issued an 8% fixed-rate debt security whereas Pfiz has sold bonds paying LIBOR + 1% instead. The companies now would like to offset their risks - Astra is afraid that interest rates will go down and Pfiz is worried that they will go up. Explain how a dealer could set up a swap agreement that meets the goals of both companies and at the same time generates a profit for themselves equal to 0.50% of the notional involved. I
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