Company A and B has been offered the following rates per annum on a £10 million 5-year loan. Company A B Fixed (%) 5 6 Floating (%) LIBOR + 1.2 LIBOR + 0.3 Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design a swap that will give

Company A and B has been offered the following rates per annum on a £10 million 5-year loan. Company A B Fixed (%) 5 6 Floating (%) LIBOR + 1.2 LIBOR + 0.3 Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design a swap that will give

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 10MC

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Similar questions

Company A and B has been offered the following rates per annum on a £10 million 5 - year loan. Company Fixed (%) Floating (%) A 5 LIBOR + 1.2 B 6 LIBOR + 0.3 Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design a swap that will give a bank, acting as an intermediary 0.5% p.a. and that will appear equally attractive to both companies. Explain how to achieve this, using diagrams and text. (15 Marks) (Please answer without use of excel)
design a swap. see attached
Design a swap. See image attached.
Company A and B has been offered the following rates per annum on a £50 million, 10 - year loan. (SEE PICTURE) Design a swap that is most beneficial to Company A, explain using text and diagram
Design a swap. see image attached.
2. Companies A and B have been offered the following rates per annum on a $20 million five-year loan: Company A Company B Fixed Rate 5.0% 6.4% Floating Rate LIBOR+0.1% LIBOR+0.6% Company A requires a floating-rate loan; company B requires a fixed-rate loan. Design a swap that will appear equally attractive to both companies. Answer the question by using excel and explain what did you do in all the parts.
6. Company A and B has been offered the following rates per annum on a £10 million 5 - year loan. Company A B Fixed (%) 5 6 Floating (%) LIBOR + 1.2 LIBOR + 0.3 Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design a swap that will give a bank, acting as an intermediary 0.5% p.a. and that will appear equally attractive to both companies. Explain how to achieve this, using diagrams and text. [15 marks]
Two companies, Company A and Company B, are looking to enter into an interest rate swap agreement. Company A Company B Fixed rate 5% 6% Floating Rate 3-month LIBOR plus 1% 3-month LIBOR plus 1.5% Suppose that company A requires a floating-rate borrowing and company B requires a fixed- rating borrowing. A financial institution is planning to arrange a swap and requires 20bps spread. If benefits are equally shared both companies, what rate of interest will A and B pay?
Companies A and B are able to receive the following rates per annum on a $10 million, 5-year investment, as a function of whether the investment returns a fixed or floating rate of interest: Fixed rate Floating rate Company A 5.0 Company B | 5.6 SOFR+20 basis points SOFR Company A requires a fixed-rate investment and company B requires a floating-rate invest- ment. Design a swap that will net a bank, acting as an intermediary, 30 basis points and will appear equally attractive to each company.
Answer a) and b) Problem 3: Interest Swap Companies A and B have been offered the following rates per annum on a $50 million five-year loan: Company A Company B Floating LIBOR +0.7% LIBOR +1.0% Fixed 6.0% 7.5% Company A requires a floating-rate loan and company B requires a fixed-rate loan. a) Design a swap that will net a bank, acting as an intermediary, 30 basis points (0.3%) per annum and that is equally attractive to the two companies. Illustrate the swap with a diagram. b) Determine the effective financing costs for A and B.
Counterparty A can borrow from the floating rate market at LIBOR + 0.5% and Counterparty B can borrow from the Eurobond market at 7%. If Counterparty A pays 7.35% into the swap and Counterparty B pays the LIBOR rate plus 0.5% into the swap, then the overall cost to borrow by Counterparty B is: a. 7.85% b. LIBOR + 0.5% С. 7% d. LIBOR + 7.5% е. 7.35%
Company X and Company Y have been offered for the following rates per annum on a RM30 million 5-year loan. Company X Company Y Fixed rate 12.5% 12.5% Floating rate 3-month KLIBOR+2% 3-month KLIBOR + 2.75% Preferred loan Fixed rate Floating rate You work for KL Bank, and thinks that the quoted rate are arbitrageable by means of an interest rate swap. Design a fixed-for-floating interest rate swap. Show the percentage gain to each party, assuming that the mispricing is split equally among three parties.