Q.35 Hannah Zane is a fixed-income portfolio manager at Smart Capital. She comes across a research report issued by a major brokerage firm on Fortunes Corporation in which the research analyst argues that within one year, the Fortune’s credit fundamentals will strengthen. The report goes further to assert following the narrowing spread, the market will respond by demanding a lower credit spread. After reading the report, Ms. Zane decides that she wants to take a credit view on Fortunes Corporation. Next week, Fortunes Corporation has declared its intention to bring to the market a 10-year senior bond issue at par with a coupon rate of 12%, offering a spread of 800 basis points over the corresponding 10-year Treasury issue. Ms. Zane is not keen to purchase the bond outright because she does not want to bear the out-of-pocket costs, the inconvenience of arranging the financing, actually going long the bond and taking delivery. Instead, she would like to express her view on Fortune Corporation’s credit risk by entering into a total return swap that matures in one year with the senior bonds that are about to be issued as the reference obligation. Under the terms of the contract, payments will be exchanged semiannually, where the total return receiver will pay the six-month Treasury rate plus 350 basis points. Which of the following is most likely correct?