You are the treasurer of a Golden Eagle Corporation that, one year ago, funded an investment  project by raising $500 in debt. The corporation issued (sold) $500 million of 3-year floating-rate  notes with a total annual coupon-interest of (6-month SOFR + 40 bps). The coupon interest is  paid semi-annually (that is, the corporation pays one-half of the total annual interest payment  every 6 months). 
You become concerned that interest rates will rise substantially and wish to convert the  remaining 2-year floating-rate (that is, variable-rate) loan into a 2-year fixed rate loan.  You can enter a 2-year swap in which the fixed rate payer pays the fixed rate of 2.60% and the floating-rate payer pays the 6-month SOFR rate. The net payments on the swap will occur semi- annually exactly on the same days that your corporation has to pay interest on its floating-rate loan. 
1) How can you convert your corporation's floating-rate loan into a synthetic fixed rate loan? 
2) What is the annual interest rate that your corporation will pay on its synthetic fixed rate loan?

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To convert the corporations floatingrate loan into a synthetic fixedrate loan the treasurer can ente... View the full answer