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