Question 1: 6 marksCompany A can borrow money at a fixed rate of 9 percent or a variablerate set at prime plus 1 percent. Company B can borrow money at avariable rate of prime plus 2 percent or a fixed rate of 8.25 percent.Company A prefers a fixed rate and company B prefers a variable rate.A swap dealer can bring them together for a commission of 1% on theswap deal and the companies allocate the remaining QSD as 0.25% and0.5% to companies A and B respectively.i) Is there any gain for the concerned parties through the swapdeal?(3 marks)ii) If so, show a swapping arrangement, ensuring that both CompanyA and B are better off and the swap and the swap dealer gets the1% cut.(3 marks)

Part ii) Structuring the Swap to Benefit Both Companies and the Swap Dealer Step 1: Define Each…

Answered: Question 1: 6 marks Company A can…

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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Company A can borrow money at a fixed rate of 9 percent or a variablerate set at prime plus 1 percent. Company B can borrow money at avariable rate of prime plus 2 percent or a fixed rate of 8.25 percent.Company A prefers a fixed rate and company B prefers a variable rate.A swap dealer can bring them together for a commission of 1% on theswap deal and the companies allocate the remaining QSD as 0.25% and0.5% to companies A and B respectively. i) Is there any gain for the concerned parties through the swapdeal?ii) If so, show a swapping arrangement, ensuring that both CompanyA and B are better off and the swap and the swap dealer gets the1% cut.
Company A can borrow money at a fixed rate of 9 percent or a variablerate set at prime plus 1 percent. Company B can borrow money at avariable rate of prime plus 2 percent or a fixed rate of 8.25 percent.Company A prefers a fixed rate and company B prefers a variable rate.A swap dealer can bring them together for a commission of 1% on theswap deal and the companies allocate the remaining QSD as 0.25% and0.5% to companies A and B respectively.i) Is there any gain for the concerned parties through the swapdeal?(3 marks)ii) If so, show a swapping arrangement, ensuring that both CompanyA and B are better off and the swap and the swap dealer gets the1% cut.
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%
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?
Company A can borrow at either an 8.5% fixed rate or a floating rate of prime + 1.75% Company B can borrow at either a floating rate of prime + 1.25% or a fixed rate of 8.65% Company A prefers a floating rate and Company B prefers a fixed rate. Which one of the following terms would be acceptable to both Company A and B if they opted to enter an interest rate swap? Multiple Choice 8.65% fixed for prime + 1.3% floating 8.5% fixed for prime + 1.75% floating 8,6% fixed for prime + 1.3% floating 8,65% fixed for prime + 1.25% floating 8.6% fixed for prime + 1.2% floating
Company A can borrow at either an 8.5% fixed rate or a floating rate of prime + 1.75% Company B can borrow at either a floating rate of prime + 1.25% or a fixed rate of 8.65% Company A prefers a floating rate and Company B prefers a fixed rate. Which one of the following terms would be acceptable to both Company A and B if they opted to enter an interest rate swap? a) 8.6% fixed for prime + 1.2% floating b) 8.5% fixed for prime + 1.75% floating c) 8.65% fixed for prime + 1.25% floating d) 8.6% fixed for prime + 1.3% floating e) 8.65% fixed for prime + 1.3% floating
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
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.
Question: Company A can borrow yen at 15.1 percent and dollars at 14.0 percent. Company B can borrow yen at 13.8 percent and dollars at 13.567 percent. At what interest rates, do company A and B respectively have a comparative advantage? a. B has comparative advantage in both markets. b. A: 15.1 percent, B: 13.567 percent C. A: 14.0 percent, B: 13.8 percent d. A has a comparative advantage in both markets. Please explain and do not copy from Chegg. Otherwise, I have to report the answer.
Use the following information about an interest rate SWAP contract to answer the following question. Assume ½ for the date count fraction. (Do not round intermediate calculations.) If Bank of America wants to make a book P/L of $30,000, what adjustment should it make to its LIBOR floating payments? Counter Parties Notional Principal Fixed Rate payer Fixed Rate Floating Rate Payer Floating Rate Floating Rate Reset Effective date Maturity Date Barclays & Bank of America $8,000,000 Barclays 6% (s.a.) Bank of America LIBOR+???bp (s.a.) 6 months December 21, 2020 December 21, 2023 Term (Years) Pay rate zero Discount Factor Receive rate zero 0.5 5.25% 0.9747 5.33% Discount Factor 0.9744 1 5.78% 0.9454 5.88% 0.9445 1.5 5.97% 0.9167 6.17% 0.9141 2 6.22% 0.8863 6.33% 0.8845 2.5 6.31% 0.8582 6.43% 0.8557 3 6.39% 0.8304 6.51% 0.8276 Provide you answer in basis points, rounded to two decimal points. Recall that 1% = 100 basis points. The following numbers are meant to provide guidance for…

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