Which of the following describes the five-year swap rate?
A. The rate on a five-year loan to a AA-rated company
B. The rate on a five-year loan to an A-rated company
C. The rate that can be earned over five years from a series of short-term loans to AA-rated companies
D. The rate that can be earned over five years from a series of short-term loans to A-rated companies
C
By considering the effect of making a series of LIBOR loans to AA-rated companies and entering into a swap we see that the swap rate corresponds to the risk in a series of short-term loans.
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