58 Transforming a Floating-rate Loan to a Fixed-rate Consider a 3-year swap initialized on March 1, 2000 Where Company B agrees to pay Company A 5%pa on $100 million Company a agrees to pay Company B 6-mth LIBOR on $100 million Suppose Company B has arranged to borrow $100 million LIBOR+ 80bp 5% Company C ompany 5.2% LIBOR B LIBOR+0.8% Note: 1 basis point(bp )= one-hundredth of 1%0 Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal UniversityOptions, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 5.8 Transforming a Floating-rate Loan to a Fixed-rate • Consider a 3-year swap initialized on March 1, 2000 where Company B agrees to pay Company A 5%pa on $100 million Company A agrees to pay Company B 6-mth LIBOR on $100 million • Suppose Company B has arranged to borrow $100 million LIBOR + 80bp Company B Company A 5% 5.2% LIBOR LIBOR+0.8% Note: 1 basis point (bp) = one-hundredth of 1%