ahungerford
New member
- Jun 18, 2026
- 0
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Can someone explain this?
Bank is raising money using CDs. It can borrow $10 mil in the form of a CD that bears 1.5% interest for two years.
Another $10 mil CD offers 1.7% for three years.
The bank can arrange two swaps:
1) receives 1.5% fixed and pays 3-mo. LIBOR - 10 bps with a 2 yr. term and NP = $10 mil
2) receives 1.7% fixed and pays 3-mo. LIBOR - 15bps with a 3 yr. term and NP = $10 mil
RESULT: after committing to the swaps and issuing the CDs, the bank has raised $20 mil, with an annual funding cost for the first two years of 3-mo. LIBOR - 12.5 bps applied to the total NP of $20 mil.
Question: how are they getting minus 12.5 bps?
Never mind, its the -25 bps / 2 = -12.5 bps. I definitely feel dumb for that question.
Bank is raising money using CDs. It can borrow $10 mil in the form of a CD that bears 1.5% interest for two years.
Another $10 mil CD offers 1.7% for three years.
The bank can arrange two swaps:
1) receives 1.5% fixed and pays 3-mo. LIBOR - 10 bps with a 2 yr. term and NP = $10 mil
2) receives 1.7% fixed and pays 3-mo. LIBOR - 15bps with a 3 yr. term and NP = $10 mil
RESULT: after committing to the swaps and issuing the CDs, the bank has raised $20 mil, with an annual funding cost for the first two years of 3-mo. LIBOR - 12.5 bps applied to the total NP of $20 mil.
Question: how are they getting minus 12.5 bps?
Never mind, its the -25 bps / 2 = -12.5 bps. I definitely feel dumb for that question.