Find what will be the net mutual interest spread earned

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Problem 1: A large commercial bank issued a $50 million 3-month CD and immediately invested the $50 million in 5-year U.S. treasuries notes. The bank pays LIBDR + 1% on the CD and future renewals. The 5-year treasuries yield 4%, ?xed. The next day the bank entered into a 5-year $50 million notional swap agreean The swap agreement, negotiated by Skin-U Investment Bank, was entered into with a credit-worthy counterparty. The swap agreement calls for the bank to make annual ?xed payments equaling 4.5% of the notional amount and receive annual variable-rate payments equaling LIBDR + 2%. If the bank is able to continually renew the CD over the next 5 years, what will be the net mutual interest spread earned by the bank across the CD, treasury notes, and swap agreement?

Reference no: EM132775359

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