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1. (complete chart) Bank of America sells a 12 year fixed rate bond at 6%. At...

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Finance

1. (complete chart) Bank of America sells a 12 year fixed ratebond at 6%. At the same time of the issue the company buys areceiver swaption, 6% and paying variable rate based on LIBOR with5 years remaining to expiration, 2.5% premium. Fill in the tablebelow assuming the exercise of the swaption - complete bond

2. Explain the net effect to BOA

3. Explain the net effect to bondholders

please write legible

YearLIBOR at Year endBOA pays to bond holdersBOA pays to swaptionBOA receives from swaptionNet Cost to BOA
110%
212%
39%
48%
511%
67%
75%
84%
96%
102%
114%
127%

Answer & Explanation Solved by verified expert
3.6 Ratings (415 Votes)
Receiver swaption gives the buyer the option but not the obligation to enter into a swap of receiving fixed rate and paying the variable rate Now the buyer will only exercise the option is the LIBOR is lower than 6 that ways he will cover his cost of paying the    See Answer
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