company has issued floating-rate notes with a maturity of 10 years, aninterest rate of (6-month LIBOR+0.15%), and total face value of $10 million.

A U.S. company has issued floating-rate notes with a maturity of 10 years, aninterest rate of (6-month LIBOR+0.15%), and total face value of $10 million. The companynow believes that interest rates will rise and wishes to protect itself against this by enteringinto an interest rate swap. A dealer provides a quote on a 10-year swap whereby the companywill pay a fixed rate 4 percent and receive (6-month LIBOR-0.10%). Interest is paidsemiannually. Assume the current LIBOR rate is 3%. Indicate how the company can use aswap to convert the debt to a fixed rate. Calculate the first net payment and indicate whichparty makes the payment. Also, what is the dealer’s first net payment (or profit)? Assume thatall payments are semiannual and made on the basis of 180/360

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