[nasrinkhan114@gmail.com]

I have come across this question on interest rate swaps. It did look quite simple but i couldn’t find a similar question to this. Im used to seeing fixed rate and LIBOR % or Normally id be given what % the bank offers as appose to the range of %. I think that is what thrown me.

Could you advise on the following?

Question:
– 8% coupon bonds and want change its interest rate by entering interest swap rate with its bank.
– bank quoted swap rate of 7% – 7.5%

What is the companys new interest profile be?

A. Variable at risk free rate
B Variable at risk free rate + 0.5%
C. Variable at risk free rate + 1.0%
D. Fixed at 7.5%

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