ABC, Ltd., is a US firm that borrows at a floating rate of SOFR plus 350 basis points. Its loan is a two-year loan with semiannual payments and a principal of $50 million. It is concerned about rising interest rates and would like to use a swap to manage this risk. The current 180-day SOFR rate is 6.00% and there is a 2-year swap available on 180-day SOFR that allows the exchange of SOFR for a fixed rate of R. Describe how ABC could use that swap to manage its interest rate risk exposure. What is their hedged borrowing cost (as a function of R)

Use the following term structure of SOFR to price the swap in the previous problem: Term Rate 180 days 6.0% 360 days 6.7% 540 days 7.2% 720 days 7.6%