medium · Debt Capital Markets bond-instruments-structures
An issuer executes an 'issue-and-swap' to achieve floating-rate funding. It issues a fixed-rate bond at 5.50% and swaps it into floating at SOFR + 150 bps.
If SOFR rises by 100 bps over the next year, what happens to the issuer's annual interest expense?
- It increases by 100 bps (in dollar terms).
- It remains unchanged.
- It increases by 50 bps.
- It decreases because the value of the swap improved.
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