Delta Company issues 10,000,000 variable-rate debt at par with a coupon rate of 6% on 1/1/X1 that pays interest quarterly and enters into an interest-rate swap that is used to hedge the debt to produce fixed-rate debt. The swap has a fair value of zero initially. The swap resets each quarter on the last day of the quarter and is perfectly effective. At 12/31/X1 the variable rate changes to 6.5%, which will cause a change in fair value of the derivative. Prepare any journal entries for 12/31/X1 & prepare any journal entries for 3/31/X2. 6.00%

Q: Some time ago a swap dealer entered into a Forward Rate Agreement (FRA) that has a notional value of…

A: A forward rate agreement represents an agreement between two parties to exchange the difference…

Q: Yosemite Corporation has an outstanding debt of $10.09 million on which it pays a 5 percent fixed…

A: Given data:Fixed rate = 4.3%Nominal principal amount = 10090000Current libor = 5%Year 1 Libor =…

Q: andon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments and a par…

A: Bond value is the present value of all coupon payments and par value.

Q: Yosemite Corporation has an outstanding debt of $10.1 million on which it pays a 6 percent fixed…

A: Interest payments:Interest payments are the periodical payments paid by a borrower to a lender as…

Q: he Wall Street Journal reports that the rate on three-year Treasury securities is 2.99% and the rate…

A: According liquidity premium theory investors gives more importance to liquidity than other things…

Q: A semi-annual payment bond pays interest on May 15 and November 15. If the cóupon is the accrued…

A: Accrued interest is the amount of interest earned on a bond but not yet paid. Accrued interest =Par…

Q: Insurance company, IHI, is part of a swap agreement with investment bank Lachlin Bank on a notional…

A: Notional amount=100 millionInterest rate=7% semi-annuallyResidual life=18 monthsInterest payment due…

Q: Determine the one-year zero rate in terms of semi-annual compounding.

A: Bonds are the financial instruments firms issue to holders for a specific period. This is a source…

Q: The Wall Street Journal reports that the rate on 5-year Treasury securities is 5.35 percent and the…

A: 5-year treasury securities = 5.35% 6 -year treasury securities = 5.6% 1 - year interest rate…

Q: Yosemite Corporation has an outstanding debt of $10.13 million on which it pays a 6 percent fixed…

A: Interest rate swaps are forward arrangements that involve the trade-off of one future flow of…

Q: A bank has issued a six-month, $2.9 million negotiable CD with a 0.45 percent quoted annual interest…

A: A certificate of deposit (CD) is referred to as a saving product that earns interest on a lump sum…

Q: pose the U.S. Treasury issued $500 million face value of 10 year, 7.5% bonds on January 15, 2005 at…

A: Treasury bonds are issued by the federal bank and they are quite safe and secured and considered as…

Q: On January 1, 2023, Fontaine Corporation issued an $800,000 notes payable to Allegheny State Bank.…

A: In a financial context, a swap benefit refers to the financial advantage or cost savings that a…

Q: A firm enters into a five-year fixed for float agreement one year ago. Because one year has passed…

A: Value of a plain vanila swap = value of  receipt leg(Vr) - value payment leg (Vp) In this given…

Q: Consider a 5-year $100 fixed notional equity-for-Libor swap, where the stock price at inception was…

A: Swap: It is a derivative contract between the two parties in which they exchange cash flows for a…

Q: Marshall Enterprises issued $800,000 of 5-year, zero-coupon notes on January 1 when the market yield…

A: A zero-coupon bond, often described as an accrual bond, seems to be financial security that would…

Q: One month ago, an investor entered into a forward agreement to sell a bond in three months' time at…

A: A forward contract: A forward contract is a contract between two parties in which they agree to…

Q: bond ​($1,000 par​ value) that pays 11 percent annual​ interest, but makes interest payments on a…

A: If Semi Annual income           Number of periods 10*2 20 Payment 1000*0.11*1/2 $ 55.00…

Q: Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest…

A: The discount on bonds issued is amortized and added to the carrying value of the bond. Interest…

Q: Bonds issued by the Coleman Manufacturing Company have a par value of $1,000, which of course is…

A: YTM is also known as Yield to maturity. It is a capital budgeting technique which helps in decision…

Q: The company issues 10.0%, 10-year bonds with a total face amount of $1,000,000. The market interest…

A: A bond is an instrument offered in a debt market that pays the investor a regular set of interest…

Q: The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 3.05 percent and…

A: A risk-free bond that is issued by the government, and also has a more than 20 years maturity period…

Q: Two treasury bonds (with semi-annual coupons) are traded. The first bond matures in six months, has…

A: Bond 1: Annual coupon rate = 6% Semi-annual rate = 6%/2 = 3% Dirty price “P” = $99.50 Let Face Value…

Q: One-year Treasury bills currently earn 3.60 percent. You expect that one year from now, 1 - year…

A: According to the liquidity premium theory, the investor's assumption with respect to future interest…

Q: Nikita Enterprises has bonds on the market making semi-annual payments, with 22 years to maturity, a…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: An MNC issues ten-year bonds denominated in 1,000,000 Mexican pesos at par. The bonds have a coupon…

A: The cost of financing (FC), sometimes known as the cost of finances (COF), is the cost, interest,…

Q: Bell Canada issues a 20 year bond with 3% coupon rate (paid semi-annually.) Other similar Bell…

A: Bonds: Bonds are the liabilities of the company which is issued to raise the funds required to…

Q: Two treasury bonds (with semi-annual coupons) are traded. The first bond matures in six months, has…

A: Given: Particulars Amount First bond   Dirty price $98.99 6 months Coupon rate 8.00%…

Q: A company obtains a $1,000,000 variable rate loan on January 1, 2021, at a 2.1% interest rate. The…

A: Computation of amount of interest expense for the new loan is as follows:The company obtained loan…

Q: rate swap where it pays a LIBOR rate of 7% and receives a fixed 5.5% on notional principal of $100…

A: An interest rate swap occurs when two parties decide to swap interest rate cash flows for a…

Q: Two treasury bonds (with semi-annual coupons) are traded. The first bond matures in six months, has…

A: Here, To Find: Twelve month spot rate =?

Q: Smith Ltd issues 100,000 $1 redeemable convertible notes. The notes pay interest at 5% per annum.…

A: Financial Instrument: Financial instruments are described as contracts between persons or parties…

Q: What is the continuously compounded zero rate for all maturities? O (a) 12.00% O b) 11.80% O0 11.71%…

A: The question is based on the concept of interest rate swap.  One stream of future interest payments…

Q: Prepare the journal entry to record the interest payment on June 30 of this year. ote: If no entry…

A: Calculation of Issue price.Coupon amount =Facc value *7.5% *1/2 =$ 700000 * 7.5 %* 1 2 =$ 29,625…

Q: Two treasury bonds (with semi-annual coupons) are traded. The first bond matures in six months, has…

A: Bond 1: Annual coupon rate = 8% Semi-annual rate = 8%/2 = 4% Dirty price “P” = $99.49 Let Face Value…

Q: Bell Canada issues a 20 year bond with 3% coupon rate (paid semi-annually) Other similar Bell Canada…

A: Bonds are debt instruments issued by companies. The issuing company pays periodic coupons or…

Q: The market price is $800 for a 17-year bond ( $1,000 par value ) that pays 9 percent annual…

A: Market Price = 800 N = 17 years i.e. 34 semi annual payments Face Value = 1000 Coupon = Face Value *…

Q: Zee Ltd has a 3 million dollar floating rate loan which is re-set every six months. The company…

A: Forward rate agreement (FRA) is an agreement to protect against an interest rate increase, entered…

Q: You observe two most recently issued securities: 6-month T-Bill (zero coupon) with yield 5.25% p.a.,…

A: T-Bill It is a government issued security that provides no coupon payment. So, the spot rate of such…

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.