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Question: Buyer Limited design to sign an interest rate swap agreement to pay a floating rate and receive a fixed rate. The swap contract can help Buyer Limited to convert $100 million, 4.6% fixed interest rate bond into a floating rate payment. The floating rate is indexed to the six-month LIBOR minus 0.52%.

(a) Explain why Buyer Limited use a swap agreement rather than issue a floating-rate bond?

(b)Determine the net cash flow to Buyer Limiter when the LIBOR is 5% at the interest payment settlement date.

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Category:- Basic Finance
Reference No.:- M92789107

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