SwapsCarter Enterprises can issue floating-rate debt at LIBOR + 1% or fixed-rate debt at 9%. Brence Manufacturing can issue floating-rate debt at LIBOR +3.4% orfixed-rate debt at 12%. Suppose Carter issues floating-rate debt and Brence issues fixed-rate debt. They are considering a swap in which Carter makes a fixed-rate payment of 8.85% to Brence and Brence makes a payment of LIBOR to Carter. What are the net payments of Carter and Brence if they engage in theswap? Round your answers to two decimal places. Use a minus sign to enter negative values, if any.Net payment of Carter: 8.60%Net payment of Brence: -(LIBOR +0.40%)Would Carter be better off if it issued fixed-rate debt or if it issued floating-rate debt and engaged in the swap?The swap is good for Carter, if it issued fixed-rate debtWould Brence be better off if it issued floating-rate debt or if it issued ed-rate debt and engaged in the swap?ed-The swap is good for Brence, if it issued fixed-rate debt and engaged in the swap +

Considering the Swap:* The difference in fixed-rate payments results in a net payment to Carter of…

Answered: Swaps Carter Enterprises can issue…

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 4P

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Carter Enterprises can issue floating-rate debt at LIBOR + 2% or fixed-ratedebt at 10%. Brence Manufacturing can issue floating-rate debt at LIBOR +3.1% or fixed-rate debt at 11%. Suppose Carter issues floating-rate debt andBrence issues fixed-rate debt. They are considering a swap in which Cartermakes a fixed-rate payment of 7.95% to Brence and Brence makes a payment of LIBOR to Carter. What are the net payments of Carter and Brence ifthey engage in the swap? Would Carter be better off if it issued fixed-ratedebt or if it issued floating-rate debt and engaged in the swap? Would Brencebe better off if it issued floating-rate debt or if it issued fixed-rate debt andengaged in the swap? Explain your answers.
DEFS Company issues 5% long term debt and engages with FEDS Company in an interest rate swap. In exchange for LIBOR, FEDS will pay 4.5% to DEFS. If the LIBOR is presently 3%, and DEFS CAPM is 6%, what is DEFS net payment? your answer should look like this 4.5 that is not the right answer
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 11% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 11%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $95 million. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)
A 139. Subject:- finance
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 7% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 7%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $10 million.
QUESTION 3 a. The market values of liabilities and assets are RM115 and RM125, respectively for OFFSHORE bank. The average duration of this bank's assets is 1.55, whereas liability's duration is 0.90. Calculate the duration gap for OFFSHORE bank. b. Based on the calculation of duration gap in the previous questions (i.e., a), what is the change in the market value of net worth as a percentage of assets if interest rates rise from 9% to 11%. c. If DEFI involves in interest-rate forward contracts with GUMTREE, how do you complete this contract to hedge interest rate risk? The value of the contract is RM2 million in face value and offers 4.5% coupon rate. The treasury bond (i.e. financial instrument) has maturity until 2035.
At the present time one can enter five-year swaps that exchange LIBOR for 8%. An off-market swap would be defined as a swap of LIBOR for a rate other than 8%. For example, a firm with a 10% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 10%. What up-front payment will be required to induce a counterparty to take the other side of the swap? Assume a notional principal of $10million. Use 8% as discount rate for all horizons.
am. 116.
Green’s Enterprise is contemplating the most feasible method of obtaining financing. It was proposed that the entity should issue a four-year convertible loan note. The loan note will have a nominal value of $100 million, which will have a nominal rate of 4% when the market rate of interest is 10%. The loan will pay interest on annual basis. Required: a. What amounts will be shown as a financial liability and as equity when the convertible loan notes are issued? Show the relevant journal entries. b. What amounts will be shown in the statement of profit or loss and statement of financial position for year two? c. Assuming the loan did not have any conversion features, but was instead issued at a discount of 15% and had issue cost of $4.019 million: i. show the journal entries for the initial issue of the loan ii. determine its carrying value at the end of the each of the four years iii. show the relevant financial statement extracts at the end of the first year
Suppose that at the present time, one can enter 5-year swaps that exchange SOFR for 4%. An off-market swap would then be defined as a swap of SOFR for a fixed rate other than 4%. For example, a firm with 8% coupon debt outstanding might like to convert to synthetic floating- rate debt by entering a swap in which it pays SOFR and receives a fixed rate of 8%. What up- front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $110 million. Note: Do not round intermediate calculations. Round your final answer to the nearest dollar amount. X Answer is complete but not entirely correct. Up-front payment 2,174,000 X $
Vijay
Alpha and Beta Companies can borrow for a five-year term at the following rates: Moody's credit rating Fixed-rate borrowing cost Floating-rate borrowing cost Alpha Beta Aa 11.9% SOFR +0.72% Baa 14.8% SOFR +1.72% Assuming more realistically that a swap bank is involved as an intermediary. Assume the swap bank is quoting five-year dollar interest rate swaps at 13.5-12.2 percent against SOFR + 0.72 percent. Compute the rates Alpha and Beta should pay to the swap bank in this swap, and calculate the all-in-cost of borrowing for Alpha and Beta and the earnings for the swap bank. 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. Compute the rates Alpha and Beta should pay to the swap bank in this swap. b-2. Calculate the all-in-cost of borrowing for Alpha and Beta and the earnings for the…

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