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: а. 7.85% b. LIBOR + 0.5% С. 7% d. LIBOR + 7.5% е. 7.35%

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: а. 7.85% b. LIBOR + 0.5% С. 7% d. LIBOR + 7.5% е. 7.35%

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 H is a high credit-worthy borrower. Company L is a low credit-worthy borrower. Their preference, status, and borrowing opportunities are shown below: Company Preferred Currently Floating Rate Borrowing Cost Fixed Rate Rate Borrowing at. Borrowing Cost H. Floating Fixed 4.25% PRIME Fixed Floating 6.25% PRIME + 0.50% Suppose the OSD is equally shared between H, L and the swap dealer. If the swap dealer receives PRIME from H, what should the swap dealer pay to H? O Prime- 0.75 % O Prime + 0.33% 4.25% 4.75%.
A 139. Subject:- finance
A financial institution uses a loan base rate of 4.35% and sets the credit risk premium at 6.68%. The institution charges a 1.5% loan origination fee and imposes 3.22 % compensating balances. The required reserves for this institution are 10%. Additionally suppose your institution specifies the following linear probability model to estimate the probability of default: PD = Bo - Bi Wealth-B2Credit Score + B3 Number of Bankruptcics Bo = 10, 109.5 %3D B1 = 0.10 %3D B2 = 0.20 %3D B3 = 0.60 %3D Use the information above to answer the question. What is the gross rate of return on the loan? O 9.31% O 11.03% O 12.53% O 12.90%
am. 118.
answer i and ii. show workings and formulas A Ltd, a low rated firm desires a fixed rate, long term loan. It currently hasaccess to floating interest rate funds at a margin of 1.5% over the Prime Rate.Its direct borrowing cost is 13% in the fixed rate bond market. B Ltd whichprefers a floating rate loan has access to fixed rate funds in cedi-bond marketat 11% and floating rate funds at Prime Rate + ½%.You are required:(i) To explain how A Ltd and B Ltd can use swap to their advantage. (ii) Calculate how much Asaba Ltd would pay for its fixed rate funds
am. 116.
Consider the following money market information being quoted: Which of the following statements is true? Particulars GBP Interest Rate THB Interest Rate Spot Rate 1-year Expected Spot Rate Bid Rate 6.100% 10.550% THB5.6601/GBP THB5.9037/GBP C. Ask Rate 6.125% 10.625% THB5.6622/GBP THB5.9961/GBP a. There is an arbitrage which can only be made by initially borrowing GBP and then investing in THB. b. More than one of the options in this question are correct. The THB is selling at a premium to the GBP in the future. O d. There is an arbitrage which can only be made by initially borrowing THB and then investing in GBP.
Assume you have treasury note .The contract price is 124 and you can deliver either bond A with conversion of 0.9 and price of 110 or a bond with conversion of 0.7 and price is 100. What will be the loss gain of the buyer? ( 1.77 -1.77 9.3 -9.3
Suppose we observe the following rates: 1R1 = 0.75%, 1R2 = 1.20%, and E(2r1) = 0.907%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L2? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
A Ltd, a low rated firm desires a fixed rate, long term loan, It currently has access to floating interest rate funds at a margin of 1.5% over the prime rate. Its direct borrowing cost is 13%in the fixed rate bond market. B Ltd which prefers a floating rate loan has access to fixed rate funds in cedi-bond market at 11% and floating rate funds at prime rate 1/2%. you are required to : (i)To explain how A Ltd and B Ltd can use swap to their advantage. (ii)Calculate how much Asaba Ltd would pay for its fixed rate funds.
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