Your firm has issued at par value a floating rate bond paying an interest rate of LIBOR + 1%. Interest rate swaps to exchange LIBOR for a fixed swap rate are available with prices of 6% bid or 6.1% asked. If you use the swap to convert your issued bond into synthetic fixed rate debt, what will be the effective interest rate on that debt?
Added by Erica H.
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The bond pays a floating rate of LIBOR + 1%. This means that the interest rate on the bond will change with changes in the LIBOR rate. Show more…
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