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A synthetic fixed-rate loan is formed by combining a floating-rate loan with a

fixed-rate payer’s position

� Conventional Floating-Rate Loan

� Swap: Fixed-Rate Payer Position

� Swap: Fixed-Rate Payer Position

� Synthetic Fixed Rate

� Pay Floating Rate

� Pay Fixed Rate

� Receive Floating Rate

� Pay Fixed Rate

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Synthetic Fixed-Rate Loan

Example:

�A synthetic fixed-rate loan formed with 2-year, $10,000,000 floating-rate loan with rates set equal to the LIBOR on 3/1 and 9/1 combined with a fixed-rate payer’s position on the swap just analyzed.