How could you use swaptions to restructure the debt

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Suppose your firm had issued a 12 percent annual coupon, 15-year bond, callable at par at the 8th year. It is now two years later, so the bonds are not callable for another 6 years. At this time, new bonds could be issued at 8 percent, which is historically quite low, especially relative to the 12 percent coupon on the bond you issued two years ago.

To provide a better matching of the interestsensitivities of your assets and liabilities, you want to lengthen the duration of the bonds.

How could you use swaptions to restructure the debt?

Explain what happens assuming two subsequent future possibilities: rates going up and rates going down.

Reference no: EM131323312

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