Chango Industries has decided to borrow $50,000,000.00 for six months. To reduce the company’s interest rate exposure, Chango entered into a swap whereby the dealer pays quoted fixed rate of 5.91% in exchange for receiving 3-month LIBOR at settlement date. Assuming that 3-month LIBOR is 5.6% on the rate determination day, describe the transaction that occurs between the dealer and Chango. a. The dealer is obligated to pay Chango $38,750. b. The dealer is obligated to pay Chango $31,250. c. Chango is obligated to pay the dealer $38,750. d. Chango is obligated to pay the dealer $31,250.
Chango Industries has decided to borrow $50,000,000.00 for six months. To reduce the company’s interest rate exposure, Chango entered into a swap whereby the dealer pays quoted fixed rate of 5.91% in exchange for receiving 3-month LIBOR at settlement date. Assuming that 3-month LIBOR is 5.6% on the rate determination day, describe the transaction that occurs between the dealer and Chango. a. The dealer is obligated to pay Chango $38,750. b. The dealer is obligated to pay Chango $31,250. c. Chango is obligated to pay the dealer $38,750. d. Chango is obligated to pay the dealer $31,250.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter24: Enterprise Risk Management
Section: Chapter Questions
Problem 1P
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Question
Chango Industries has decided to borrow $50,000,000.00 for six months. To reduce the company’s interest rate
exposure, Chango entered into a swap whereby the dealer pays quoted fixed rate of 5.91% in exchange for receiving
3-month LIBOR at settlement date. Assuming that 3-month LIBOR is 5.6% on the rate determination day, describe
the transaction that occurs between the dealer and Chango.
a. The dealer is obligated to pay Chango $38,750.
b. The dealer is obligated to pay Chango $31,250.
c. Chango is obligated to pay the dealer $38,750.
d. Chango is obligated to pay the dealer $31,250.
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