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A company that has an existing 4-year, $50 million loan with annual coupon payments of LIBOR + 3.5% would like to enter into a swap agreement to exchange the floating rate interest payments for fixed interest rate payments for the balance of the loan term.

Assume that the expected LIBOR rate that determines the payment at years 1, 2, 3 and 4 are: 0.75%, 1.25%, 1.50%, and 1.75%.

The risk free interest rate for a 4-year investment is 2.275%. What will the terms of the swap be?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92713071

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