Suppose Sony issues $100,000,000 of 5-year dollar bonds. Nomura will handle the bond issue for a fee of 1.875%. Sony’s bonds will be priced at par if they carry a coupon of 8.5%. As the swap trader...

Suppose Sony issues $100,000,000 of 5-year dollar bonds. Nomura will handle the bond issue for a fee of 1.875%. Sony’s bonds will be priced at par if they carry a coupon of 8.5%. As the swap trader for Mitsubishi UFJ (MUFJ), you have been quoting the following rates on 5-year swaps:

U.S. Dollars: 8.00% bid and 8.10% offered against the 6-month dollar LIBOR

Japanese Yen: 4.50% bid and 4.60% offered against the 6-month dollar LIBOR

Sony would like to do the dollar bond issue, but it prefers to have fixed-rate yen debt. If MUFJ gets the proceeds of the dollar bond issue, giving Sony an equivalent amount of yen, and MUFJ agrees to make the dollar interest payments associated with Sony’s dollar bonds, what yen interest payments should MUFJ charge Sony? What is Sony’s all-in cost in yen? The current spot exchange rate is ¥98.50/$.