At the present time, one can enter five- year swaps that exchange LIBOR for 8 percent. An

Question:

At the present time, one can enter five- year swaps that exchange LIBOR for 8 percent. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 8 percent. For example, a firm with 10 percent 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 10 percent. What up- front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $ 10 million.
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...