A bank borrows funds by issuing CDs that carry a variable rate equal to the yield of

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A bank borrows funds by issuing CDs that carry a variable rate equal to the yield of the six-month Treasury bill plus 50 basis points. The bank gets the chance to invest in a seven-year loan that will pay a fixed rate of \(7 \%\). So, the bank wants to engage in an interest rate swap designed to lock in an interest spread of 75 basis points. Give the outlines of two possible swaps: one designed to change the asset's cash flow into a variable rate, and the other designed to change the liability's cash flow into a fixed rate.

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Foundations Of Financial Markets And Institutions

ISBN: 9780136135319

4th Edition

Authors: Frank J Fabozzi, Franco G Modigliani, Frank J Jones

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