An insurance company owns $ 50 million of floating- rate bonds yielding LIBOR plus 1 percent. These

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An insurance company owns $ 50 million of floating- rate bonds yielding LIBOR plus 1 percent. These loans are financed by $ 50 million of fixed-rate guaranteed investment contracts (GICs) costing 10 percent. A finance company has $ 50 million of auto loans with a fixed rate of 14 percent. They are financed by $ 50 million of debt with a variable rate of LIBOR plus 4 percent. If the finance company is going to be the swap buyer and the insurance company the swap seller, what is an example of a feasible swap?

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Financial Markets and Institutions

ISBN: 978-0077861667

6th edition

Authors: Anthony Saunders, Marcia Cornett

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