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Answer: 5.9%
## Explanation The fixed rate in an interest rate swap is calculated as: \[ \text{Fixed Swap Rate} = \text{Treasury Yield} + \text{Swap Spread} \] Where: - Treasury Yield = 5.4% - Swap Spread = 50 bps = 0.50% **Calculation:** \[ \text{Fixed Swap Rate} = 5.4\% + 0.50\% = 5.9\% \] Note that the interpolated spread on the corporate bond (10 bps) is not relevant for calculating the fixed swap rate. The swap spread represents the additional yield above the risk-free Treasury rate that fixed-rate payers must pay. **Answer: B**
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Based on this information, the rate paid by the fixed payer in a fixed-for-floating interest rate swap should be:
A
4.9%
B
5.9%
C
6.0%
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