Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 7%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 7%. For example, a firm with 9% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 9%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $30 million. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.) Up-front payment
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 7%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 7%. For example, a firm with 9% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 9%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $30 million. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.) Up-front payment
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
Problem 1PS
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Transcribed Image Text:Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 7% . An off-market swap would then be defined
as a swap of LIBOR for a fixed rate other than 7% . For example, a firm with 9% coupon debt outstanding might like to convert to
synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 9%. What up-front payment will be
required to induce a counterparty to take the other side of this swap? Assume notional principal is $30 million. (Do not round
intermediate calculations. Round your final answer to the nearest dollar amount.)
Up-front payment
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