Options $[$LO$4]$ Explain why a put option on a bond is conceptually the same as a call option on interest rates.

Hedging Interest Rates $[$LO$1]$ A company has a large bond issue maturing in one year. When it matures, the company will float a new issue. Current interest rates are attractive, and the company is concerned that rates next year will be higher. What are some hedging strategies that the company might use in this case?

Swaps $[$LO$3]$ Explain why a swap is effectively a series of forward contracts. Suppose a firm enters into a swap agreement with a swap dealer. Describe the nature of the default risk faced by both parties.

Swaps $[$LO$3]$ Suppose a firm enters into a fixed$-$for$-$floating interest rate swap with a swap dealer. Describe the cash flows that will occur as a result of the swap.