Suppose that at the present time, one can enter 5-year swaps that exchange SOFR for 8%. An off- market swap would then be defined as a swap of SOFR for a fixed rate other than 8%. For example, a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays SOFR and receives a fixed rate of 11% What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $20 million. Note: 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 SOFR for 8%. An off- market swap would then be defined as a swap of SOFR for a fixed rate other than 8%. For example, a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays SOFR and receives a fixed rate of 11% What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $20 million. Note: 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 SOFR for 8%. An off-
market swap would then be defined as a swap of SOFR for a fixed rate other than 8%. For example,
a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by
entering a swap in which it pays SOFR and receives a fixed rate of 11% What up-front payment will
be required to induce a counterparty to take the other side of this swap? Assume notional principal
is $20 million.
Note: Do not round intermediate calculations. Round your final answer to the nearest dollar
amount.
Up-front payment
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