question archive A company's investments earn LIBOR minus 0
A company's investments earn LIBOR minus 0
Subject:FinancePrice: Bought3
A company's investments earn LIBOR minus 0.5%.
Table 1: Swap quotes made by the market maker (Percent per annum)
Maturity (vears) Bid Offer Swap Rate
2 2,5 2,58 2,565
3 2,97 3,00 2,985
4 3,15 3,39 3,170
5 3,29 3,30 3,280
7 3,40 3,44 3,420
10 3,48 3,52 3,500
Use Table 1 to explain how the company can use the quoted rates to correct the investments to
(a) Two-year fixed rate investment
(b) Seven—year fixed-rate investments.
(c) The company also borrowed money at 5J% for five years and wishes to convert this
borrowing to a floating-rate liability by making use of the swap quotes in table 1, explain
how this can be done.
