Posted: August 12th, 2015
interest rate risk
IBM has an existing loan of $20 million at LIBOR +0.25%, repriced every six months, for the next five years. The firm worries that the interest rates, particularly LIBOR, might go up in the years ahead. It decides to swap the loan into a fixed rate one. It contacts Citibank and receives the following quotes:
(1) Please help IBM make an arrangement with Citibank.
(2) Please evaluate the result for IBM after the swap.
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