Question

(a) Company A has been offered the swap quotes in Table 7.3. It can borrow for three years at $3.45 \%$. What floating rate can it swap this fixed rate into? (b) Company B has been offered the swap quotes in Table 7.3. It can borrow for five years at LIBOR plus 75 basis points. What fixed rate can it swap this rate into? (c) Explain the rollover risks that Company B is taking.

   (a) Company A has been offered the swap quotes in Table 7.3. It can borrow for three years at $3.45 \%$. What floating rate can it swap this fixed rate into? (b) Company B has been offered the swap quotes in Table 7.3. It can borrow for five years at LIBOR plus 75 basis points. What fixed rate can it swap this rate into? (c) Explain the rollover risks that Company B is taking.

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Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 7, Problem 20

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Step 1

45\%$ into a floating rate, Company A needs to find the floating rate that is equivalent to this fixed rate. From Table 7.3, we can see that the swap quote for a three-year swap is $3.40\%$ fixed rate. This means that Company A can swap its fixed rate of $3.45\%$ Show more…

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(a) Company A has been offered the swap quotes in Table 7.3. It can borrow for three years at $3.45 \%$. What floating rate can it swap this fixed rate into? (b) Company B has been offered the swap quotes in Table 7.3. It can borrow for five years at LIBOR plus 75 basis points. What fixed rate can it swap this rate into? (c) Explain the rollover risks that Company B is taking.

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