Recommend a floating rate, can it swap this fixed rate into

Reference no: EM132174193

Question -

Explain why an Interest Rate Swap (assume LIBOR as the floating rate) with quarterly settlement (assume 90 days per quarter) can be viewed as a strip of Eurodollar futures contracts. (Note: A strip is a sequence of ED futures with successive expirations)

The following table gives the bid and offer fixed rates in the swap market and the corresponding swap rates

Maturity (years)	Bid (%)	Offer (%)	Swap Rate (%)
2	5.03	5.06	5.045
4	5.35	5.39	5.370
7	5.65	5.68	5.665
10	5.83	5.87	5.850

(i) Suppose that Company X can invest for 4 years at 4.5%. Recommend a floating rate, can it swap this fixed rate into?

(ii) Company Y can invest for 10 years at LIBOR minus 50 basis points. Recommend a fixed rate, can it swap this floating rate into?

Reference no: EM132174193

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