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Ashton Bishop is the debt manager for World Telephone, which needs €3.53 billion Euro financing for its operations. Bishop is considering the choice between issuance of debt denominated in: • Euros (€), or .U.S. dollars, accompanied by a combined interest rate and currency swap. Bishop believes that issuing the U.S.-dollar debt and entering into the swap can lower World's cost of debt by 45 basis points. Immediately after selling the debt issue, World would swap the U.S. dollar payments for Euro payments throughout the maturity of them debt. She assumes a constant currency exchange rate throughout the tenor of the swap. Characteristic Par value Term to maturity Fixed interest rate Interest payment Spot currency exchange rate 3-year tenor euro/U.S. dollar fixed interest rates Cash Flows of the Swap World pays Notional principal Interest payment World receives Notional principal Interest payment Euro Currency Debt $1.10 per euro ($1.10/€1.00) 6.00% euro/7.50% U.S. dollar Year 0 $ 3.00 $198.77 ( €3.53 billion 3 years 6.25% Annual Required: b. Enter the notional principal and interest payment cash flows of the combined interest rate and currency swap. Note: Round the final answers to two decimal places. billion billion 3.53 211.80 U.S. Dollar Currency Debt $3 billion 3 years $ 3.53 billion 3.00 $211.80 billion $ 225.00 Answer is complete but not entirely correct. Year 1 Year 2 Annual million million 7.75% million S 3.53 million €211.80 $ 3.53 $ 225.00 Year 3 million € 3.53 billion million €211.80 million million 3.00 million $225.00 billion million

Ashton Bishop is the debt manager for World Telephone, which needs €3.53 billion Euro financing for its operations. Bishop is considering the choice between issuance of debt denominated in: • Euros (€), or .U.S. dollars, accompanied by a combined interest rate and currency swap. Bishop believes that issuing the U.S.-dollar debt and entering into the swap can lower World's cost of debt by 45 basis points. Immediately after selling the debt issue, World would swap the U.S. dollar payments for Euro payments throughout the maturity of them debt. She assumes a constant currency exchange rate throughout the tenor of the swap. Characteristic Par value Term to maturity Fixed interest rate Interest payment Spot currency exchange rate 3-year tenor euro/U.S. dollar fixed interest rates Cash Flows of the Swap World pays Notional principal Interest payment World receives Notional principal Interest payment Euro Currency Debt $1.10 per euro ($1.10/€1.00) 6.00% euro/7.50% U.S. dollar Year 0 $ 3.00 $198.77 ( €3.53 billion 3 years 6.25% Annual Required: b. Enter the notional principal and interest payment cash flows of the combined interest rate and currency swap. Note: Round the final answers to two decimal places. billion billion 3.53 211.80 U.S. Dollar Currency Debt $3 billion 3 years $ 3.53 billion 3.00 $211.80 billion $ 225.00 Answer is complete but not entirely correct. Year 1 Year 2 Annual million million 7.75% million S 3.53 million €211.80 $ 3.53 $ 225.00 Year 3 million € 3.53 billion million €211.80 million million 3.00 million $225.00 billion million

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ashton Bishop is the debt manager for World Telephone, which needs €3.53 billion Euro financing for its operations. Bishop is considering the choice between issuance of debt denominated in: • Euros (€), or • U.S. dollars, accompanied by a combined interest rate and currency swap. Bishop believes that issuing the U.S.-dollar debt and entering into the swap can lower World's cost of debt by 45 basis points. Immediately after selling the debt issue, World would swap the U.S. dollar payments for Euro payments throughout the maturity of the debt. She assumes a constant currency exchange rate throughout the tenor of the swap. Characteristic Par value Term to maturity Fixed interest rate Interest payment Spot currency exchange rate 3-year tenor euro/U.S. dollar fixed interest rates Euro Currency Debt Cash Flows of the Swap World pays Notional principal Interest payment World receives Notional principal Interest payment $1.10 per euro ($1.10/€1.00) 6.00% euro/7.50% U.S. dollar Year 0 €3.53 billion 3 years 6.25% Annual $ 3.00 billion $198.77 billion Required: b. Enter the notional principal and interest payment cash flows of the combined interest rate and currency swap. Note: Round the final answers to two decimal places. S 3.53 million 211.80 million Answer is complete but not entirely correct. Year 1 Year 2 $ 3.53 billion $ 3.00 $211.80 billion $ 225.00 U.S. Dollar Currency Debt $3 billion 3 years million million $ 7.75% Annual 3.53 million €211.800 million $ 3.53 $ 225.00 million million Year 3 3.53 €211.80 3.00 $ 225.00 billion million billion million
Transcribed Image Text:Ashton Bishop is the debt manager for World Telephone, which needs €3.53 billion Euro financing for its operations. Bishop is considering the choice between issuance of debt denominated in: • Euros (€), or • U.S. dollars, accompanied by a combined interest rate and currency swap. Bishop believes that issuing the U.S.-dollar debt and entering into the swap can lower World's cost of debt by 45 basis points. Immediately after selling the debt issue, World would swap the U.S. dollar payments for Euro payments throughout the maturity of the debt. She assumes a constant currency exchange rate throughout the tenor of the swap. Characteristic Par value Term to maturity Fixed interest rate Interest payment Spot currency exchange rate 3-year tenor euro/U.S. dollar fixed interest rates Euro Currency Debt Cash Flows of the Swap World pays Notional principal Interest payment World receives Notional principal Interest payment $1.10 per euro ($1.10/€1.00) 6.00% euro/7.50% U.S. dollar Year 0 €3.53 billion 3 years 6.25% Annual $ 3.00 billion $198.77 billion Required: b. Enter the notional principal and interest payment cash flows of the combined interest rate and currency swap. Note: Round the final answers to two decimal places. S 3.53 million 211.80 million Answer is complete but not entirely correct. Year 1 Year 2 $ 3.53 billion $ 3.00 $211.80 billion $ 225.00 U.S. Dollar Currency Debt $3 billion 3 years million million $ 7.75% Annual 3.53 million €211.800 million $ 3.53 $ 225.00 million million Year 3 3.53 €211.80 3.00 $ 225.00 billion million billion million
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