Question: Microsoft issues a four year, floating-rate bond for the amount of $100 Million. It pays annually to bondholders. Because Microsoft would prefer to have a

  1. Microsoft issues a four year, floating-rate bond for the amount of $100 Million. It pays annually to bondholders. Because Microsoft would prefer to have a fixed rate payment, it enters into a SWAP with Citibank.

Year

LIBOR (%)

Fixed-Rate payments to Citibank

Floating-Rate payments from Citibank

Net payment to Citibank

Payment to bondholders

Net payment by Microsoft

1

4

4

2

3

2

5

5

1

4

3

6

6

0

5

4

7

7

-1

6

  1. Explain the conditions of this SWAP

  2. Which is the final fixed rate that Microsoft has to pay?

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