What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $95 million. (
What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $95 million. (
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. 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 LIBOR 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 $95 million. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)
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