CB Solutions. Heather O'Reilly, the treasurer of CB Solutions, believes interest rates are going to rise, so she wants to swap her future floating-rate interest payments for fixedrates Presently, she is paying per annum on $5,000,000 of debt for the next two years, with payments due semiannually. LIBOR is currently 3 984% per annum Spread paidover LIBOR, per annum is 2.000 % Heather has just made an interest payment today, so the next payment is due six months from now Heather finds that she can swap hercurrent floating-rate payments for fixed payments of 7.004% per annum (CB Solutions weighted average cost of capital is 12%, which Heather calculates to be 6% per 6-monthperiod, compounded semiannually).a. If LIBOR rises at the rate of 50 basis points per 6-month period, starting tomorrow, how much does Heather save or cost her company by making this swap?b. If LIBOR falls at the rate of 25 basis points per 6-month period, starting tomorrow, how much does Heather save or cost her company by making this swap?a. If LIBOR rises at the rate of 50 basis points per 6-month period, starting tomorrow, how much does Heather save or cost her company by making this swap?The swapfor the first six-month period is $ (Select from the drop-down menu and round to the nearest dollar)costCOTEsavings

A swap is a contract between two parties agreeing to trade long-term. One might use an interest rate…

a. If LIBOR rises at the rate of 50 basis points per 6-month period, starting tomonow, how much does Heather save or cost her company by making this swap? b. If LIBOR falls at the rate of 25 basis points per 6-month period, starting tomorrow, how much does Heather save or cost her company by making this swap?

a. If LIBOR rises at the rate of 50 basis points per 6-month period, starting tomonow, how much does Heather save or cost her company by making this swap? b. If LIBOR falls at the rate of 25 basis points per 6-month period, starting tomorrow, how much does Heather save or cost her company by making this swap?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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