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?
Please do not copy and paste what has already been posted and all working. Company A can borrow money at a fixed rate of 9 percent or a variable rate set at prime plus 1 percent. Company B can borrow money at a variable 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 the swap deal. a) Compute the potential gain for the concerned parties through the swap deal?
ABC can borrow at either a fixed rate of 11% or a floating rate of LIBOR + 1% XYZ can borrow at either a fixed rate of 10% or a floating rate of LIBOR + 3% The swap dealer can help them meet and negotiate for a fee of 2% of the deal Question: Construct a mutually beneficial swapping arrangement if ABC and XYZ decide to share the available QSD equally and show that the dealer is satisfied with the deal as well.
Solution all.part ,,????
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
< 3. Table 2 contains borrowing rates faced by Pingel Plc and Fereday Plc:< Table 24 Pingel Fereday< ← Fixed< Floating 5.0% 6.5% 6-Month SONIA+0.1%< 6-Month SONIA+0.5%< (i) Construct a plain vanilla interest rate swap that is negotiated through a financial intermediary. The financial intermediary requires a spread of 0.1% to facilitate the trade. < (ii) Explain and discuss the comparative advantage argument that underpins the rationale for the swap.
design a swap. see attached

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