Please correct answer and don't use hand raiting In the problems below, "Equally attractive" means that both firms saved (or gained) thesame % from the Swap.There are 4 problems.Q1.Company A and company B, each, need a $20Million, 5-year loan with annual payments.Both face the following rates:Q2.FIXEDFLOATNIGA5%SOFR + .1%B6.4%SOFR +.6%A requires a floating rate loan and B requires a fixed rate loan.Design an indirect swap where SD gains 20 basis points, while the swap isequally attractive to both companies.The swap in Q1 is for 5 years with annual payments. Assume that duringthese 5 years SOFR turned out to be: 4%, 5%, 6%, 7% and 8%.Show the annual cash flows to A, B and SD during the 5 year tenor.

Question 2Given SOFR rates for the 5 years: 4%, 5%, 6%, 7%, and 8%Objective: Calculate the annual…

Answered: In the problems below, "Equally…

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

See similar textbooks

Similar questions

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.
Design a swap. See image attached.
design a swap. see attached
A company can borrow funds at LIBOR minus 50 basis points. There is a swap available where one side pays 7% and the other side pays LIBOR-1%. The company is concerned that interest rates will increase and, thus, wants to change the nature of its liability from paying floating to paying fixed rate. What rate can the company pay on its lability after it engages in the swap?
D3) Finance ABC is currently paying 7.5% fixed rate on S$10m. ABC can borrow at LIBOR. XYZ is paying LIBOR + 0.8% on S$10m. XYZ can borrow fixed at 9.5%. ABC and XYZ agree to swap interest payments to take advantage of the arbitrage created by their respective interest rate differentials. Which of the following is correct? A. ABC ends up paying LIBOR - 0.6%, XYZ ends up paying 8.9% B. ABC ends up paying 7.5%, XYZ ends up paying LIBOR + 0.8% C. ABC ends up paying LIBOR, XYZ ends up paying 9.5% D. None of the above
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%
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.
15. The table below presents the costs of borrowing for Caterpillar and Tesla, and the a Swap Bank quote against LIBOR. Caterpillar would like to get a $5,000,000.00 floating rate loan. Tesla would like to get a $5,000,000.00 fixed rate loan. How much can Tesla save each year by entering a swap agreement? (a) $37,000 (b) $9,500 (c) $8,000 (d) $27,500 Fixed-Rate Borrowing Cost Floating-Rate Borrowing Cost Caterpillar Tesla 3.00 6.50 LIBOR LIBOR +2.60 Swap Bank Quote Bid Ask 3.19% 3.74% (e) None of the above
The table below presents the costs of borrowing for Caterpillar and ExxonMobil, and a Swap Bank quote against LIBOR. Caterpillar would like to get a floating rate loan. ExxonMobil would like to get a fixed rate loan. How much can Caterpillar save by entering a swap agreement? Caterpillar ExxonMobil Swap Bank Quote 33 bps Ⓒ7 bps 23 bps None of the alternatives 10 bps Fixed-Rate Borrowing Costs 4 5.5 Bid 4.1% Floating-Rate Borrowing Cost Libor Libor+1.1 Ask 4.33%
Alpha and Beta Companies can borrow for a five year term at the following rates: Alpha Beta Moody's credit rating Aa Baa Fixed rate borrowing cost 12.5% 16.0% Floating rate borrowing cost SOFR+0.72% SOFR+1.72% Required: a. Calculate the quality spread differential (QSD). b-1. Develop an interest rate swap in which both Alpha and Beta have an equal cost savings in their borrowing costs. Assume Alpha desires floating rate debt and Beta desires fixed rate debt. No swap bank is involved in this transaction. What rate should Alpha pay to Beta? b-2. What rate will Beta pay to Alpha? b-3. Calculate the all-in cost of borrowing for Alpha and Beta, respectively.
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]
Companies A and B want to borrow €10 million each (they want to issue debt) for years. The market offers them the following alternatives (Symbol for floating rate: L). Company A) Floating rate: L + 1.5%, Fix rate: 2.0%. Company B) Floating rate: L+ 3.0%, Fix rate: 5.0%. A financial institution arranges a swap and charges 10 basis points (0.1%) per year. If the swap is organized so that it is equally attractive to both companies: What is the net rate of interest that will end up paying company A and B

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning