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.

How can you convert your corporations floating-rate loan into a synthetic fixed rate loan?

What is the annual interest rate that your corporation will pay on its synthetic fixed rate loan?

Answer rating: 100% (QA)

To convert the corporations floatingrate loan into a synthetic fixedrate loan you can enter into a 2... View the full answer