Suppose the Philadelphia investor needs fixed rate funds which are available at the rate of 7.875% to be computed half yearly but it has access to cheaper floating rate funds available locally to it at LIBOR + 0.225%. The Bolivian firm investor in South America also needs floating-rate funds available to it at a six-month LIBOR flat but has access to cheaper fixed-rate funds available to it at the rate of 9.5% to be computed half yearly. Both the principal investors are identical in size on maturity and are in the same currency. Design how the interest rate swap takes place.
Suppose the Philadelphia investor needs fixed rate funds which are available at the rate of 7.875% to be computed half yearly but it has access to cheaper floating rate funds available locally to it at LIBOR + 0.225%. The Bolivian firm investor in South America also needs floating-rate funds available to it at a six-month LIBOR flat but has access to cheaper fixed-rate funds available to it at the rate of 9.5% to be computed half yearly. Both the principal investors are identical in size on maturity and are in the same currency. Design how the interest rate swap takes place.
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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Suppose the Philadelphia investor needs fixed rate funds which are available at the rate of 7.875% to be computed half yearly but it has access to cheaper floating rate funds available locally to it at LIBOR + 0.225%. The Bolivian firm investor in South America also needs floating-rate funds available to it at a six-month LIBOR flat but has access to cheaper fixed-rate funds available to it at the rate of 9.5% to be computed half yearly. Both the principal investors are identical in size on maturity and are in the same currency. Design how the interest rate swap takes place.
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