The swap terms available to the insurance company are as follows:

  1. Every six months the life insurance company will pay LIBOR.
  2. Every six months the life insurance company will receive 8.40%.

What has this interest-rate contract done for the bank and the life insurance company? Consider first the bank. For every six-month period for the life of the swap agreement, the interest-rate spread will be as follows: Read the rest of this entry »