Question: You consider buying a 5-year floating rate note (FRN), maturing on 12/31/2023 and paying coupon six months at the rate equal to the 6-month LIBOR

You consider buying a 5-year floating rate note (FRN), maturing on 12/31/2023 and paying coupon six months at the rate equal to the 6-month LIBOR rate plus 50 basis points, reset every six months.

Explain briefly how you can use the 5-year swap to convert the FRN into a fixed coupon bond. By doing so, what will be the effective coupon rate?

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