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An investor purchases 300,000 of ABC Corps bonds with an annual coupon of 8% and maturity of 5 years. The yield is 8% so the bonds are selling at par. The total notional amount of the bonds is $30,000,000. The investor hedges 80% of the position by becoming a total rate of return swap (TROR) payer. ABC’s computer system is hacked and the firm’s bonds decrease in price from $100 to $90. What is the payoff to the TROR total rate of return swap due to the increase in operations risk? A. $3,000,000. B. $2,400,000. C. $2,100,000. D. $1,700,000. |