Question: At the present time one can enter five year swaps

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 coupon 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.

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  • CreatedJune 21, 2015
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