3) You have issued a term loan to a borrower at 4% for 4 years
on $25m. They are ecstatic because they (and you) believe interest
rates will go up in that 4-year period, but you needed to do the
loan because you want the customer’s business.
To save your Spread, you decide to buy a $25m notional principal
interest rate swap for 4% Fixed to receive SOFR+2%. Assume SOFR for
the next 4 years are expected to be 4.25%,...