Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below: Company X Y Fixed-rate borrowing Floating-rate cost borrowing cost 10% 12% 10.45% -10.45% against LIBOR flat. None of the above. A swap bank is involved and quotes the following rates five-year dollar interest rate swaps at 10.05% -10.45% against LIBOR flat. Assume company Y has agreed, but company X will only agree to the swap if the bank offers better terms. What are the absolute best terms the bank can offer X, given that it already booked Y? 10.45% -10.05% against LIBOR flat. 10.50% -10.50% against LIBOR flat. LIBOR LIBOR+1.5%
Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown below: Company X Y Fixed-rate borrowing Floating-rate cost borrowing cost 10% 12% 10.45% -10.45% against LIBOR flat. None of the above. A swap bank is involved and quotes the following rates five-year dollar interest rate swaps at 10.05% -10.45% against LIBOR flat. Assume company Y has agreed, but company X will only agree to the swap if the bank offers better terms. What are the absolute best terms the bank can offer X, given that it already booked Y? 10.45% -10.05% against LIBOR flat. 10.50% -10.50% against LIBOR flat. LIBOR LIBOR+1.5%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Company X wants to borrow $10,000,000 floating for 5 years;
company Y wants to borrow $10,000,000 fixed for 5 years. Their
external borrowing opportunities are shown below:
Fixed-rate borrowing Floating-rate
Company
cost
borrowing cost
10%
LIBOR
Y
12%
LIBOR+1.5%
A swap bank is involved and quotes the following rates five-year
dollar interest rate swaps at 10.05%-10.45% against LIBOR flat.
Assume company Y has agreed, but company X will only agree to the
swap if the bank offers better terms. What are the absolute best
terms the bank can offer X, given that it already booked Y?
10.45%-10.45% against LIBOR flat.
10.45%-10.05% against LIBOR flat.
10.50%-10.50% against LIBOR flat.
None of the above.
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