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Looking at an Interest Rate Swap on a 10 year floating rate corporate loan portfolio and...

Looking at an Interest Rate Swap on a 10 year floating rate corporate loan portfolio and a Credit Default Swap on a fixed rate 10 year corporate bond portfolio, which will give a higher yield? Why?( points)

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Answer #1

The interest rate swap on 10 year floating rate corporate loan portfolio shall be higher as compared to the credit default swap. This is because of the fact that the chances of default are lesser as and thus the benefits is however contingent upon the deafult. However the floating rate on the corporate bonds shall have a higher yield because since the returns are based on floating rate which shall increase over time as the people imvesting over longer duration shall demand extra return on their investments.

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