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A company's investments earn LIBOR minus 0.5%. Table:Swap quotes made by market maker (percent per annum)
Maturity (years) Bid Offer Swap rate
2 2.55 2.58 2.565
3 2.97 3.00 2.985
4 3.15 3.19 3.170
5 3.26 3.30 3.280
7 3.40 3.44 3.420
Use table (information above) to explain how the company can use the quoted rates to convert the investments to
(a) Two-year fixed rate investment
(b) Seven--year fixed-rate investments.
(c) The company also borrowed money at 5.1% for five years and wishes to convert this borrowing to a floating-rate liability by making use of the swap quotes from above (table), explain how this can be done.
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