Astra has issued an 8% fixed-rate debt security whereas Pfiz has sold bonds paying LIBOR + 1% instead. The companies now would like to offset their risks - Astra is afraid that interest rates will go down and Pfiz is worried that they will go up. Explain how a dealer could set up a swap agreement that meets the goals of both companies and at the same time generates a profit for themselves equal to 0.50% of the notional involved. [

Astra has issued an 8% fixed-rate debt security whereas Pfiz has sold bonds paying LIBOR + 1% instead. The companies now would like to offset their risks - Astra is afraid that interest rates will go down and Pfiz is worried that they will go up. Explain how a dealer could set up a swap agreement that meets the goals of both companies and at the same time generates a profit for themselves equal to 0.50% of the notional involved. [

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter24: Enterprise Risk Management

Section: Chapter Questions

Problem 4P

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