Sherri's Sherries SA wants to borrow $10,000,000 (face value) at a fixed rate for 5 years. The company has the following borrowing opportunities: 5.45% fixed rate cost or a (SOFR + 115 bps) percent floating rate cost. A swap bank offers the following bid-ask quotation for SOFR: 365 bps - 415 bps. How much can the company save in borrowing costs (in bps) by entering a swap agreement (compared to borrowing without a swap)? Group of answer choices 530 bps 480 bps 20 bps No savings are possible. 15 bps 65 bps
Sherri's Sherries SA wants to borrow $10,000,000 (face value) at a fixed rate for 5 years. The company has the following borrowing opportunities: 5.45% fixed rate cost or a (SOFR + 115 bps) percent floating rate cost. A swap bank offers the following bid-ask quotation for SOFR: 365 bps - 415 bps. How much can the company save in borrowing costs (in bps) by entering a swap agreement (compared to borrowing without a swap)? Group of answer choices 530 bps 480 bps 20 bps No savings are possible. 15 bps 65 bps
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Q9: Sherri's Sherries SA wants to borrow $10,000,000 (face value) at a fixed rate for 5 years. The company has the following borrowing opportunities: 5.45% fixed rate cost or a (SOFR + 115 bps) percent floating rate cost.
A swap bank offers the following bid-ask quotation for SOFR:
365 bps - 415 bps.
How much can the company save in borrowing costs (in bps) by entering a swap agreement (compared to borrowing without a swap)?
Group of answer choices
530 bps
480 bps
20 bps
No savings are possible.
15 bps
65 bps
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