A large firm X pays a fixed interest rate 5.5% to its bondholders, while a smaller firm Y pays a

Question:

A large firm X pays a fixed interest rate 5.5% to its bondholders, while a smaller firm Y pays a floating interest rate Libor plus 0.9% to its bondholders. The two firms agree on a swap transaction which results in the larger firm X paying floating interest rates of Libor plus 0.1% to Y, and the smaller firm Y paying fixed interest rates 5.7% to the larger firm. The net payment for firm Y is: ___________?

Expert Answer:

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To determine the net payment for firm Y in the swap transaction we need to calculate the difference

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