Problem 5-15Yosemite Corporation has an outstanding debt of $10.2 million on which it pays a 7 percent fixed interest rate annually. Yosemite justmade its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over thenext three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-yearinterest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 5.9 percent, and receive a 5.4 percent fixedrate on $10.2 million notional principal. Suppose that LIBOR turns out to be 5.3 percent in one year and 5 percent in two years.Including interest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest paymentsfor the next three years?Note: Negative values should be indicated by parentheses.Year 1Year 2.Year 3Net InterestPayments

In case of interest rate swap, one party pays floating rate to the counter party and receives a…

te Corporation has an outstanding debt of $1 s annual interest payment and has three year ree years and that floating-rate debt will allow rate swap with annual payments in which You $10.2 million notional principal. Suppose that ng interest payments on Yosemite's outstandin next three years? Hegative values should be indicated by pare Net Interest Payments

te Corporation has an outstanding debt of $1 s annual interest payment and has three year ree years and that floating-rate debt will allow rate swap with annual payments in which You $10.2 million notional principal. Suppose that ng interest payments on Yosemite's outstandin next three years? Hegative values should be indicated by pare Net Interest Payments

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter5: Time Value Of Money

Section: Chapter Questions

Problem 27P: EFFECTIVE VERSUS NOMINAL INTEREST RATES Bank A pays 4% interest compounded annually on deposits,...

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Problem 5-15
Yosemite Corporation has an outstanding debt of $10.2 million on which it pays a 7 percent fixed interest rate annually. Yosemite just
made its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over the
next three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-year
interest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 5.9 percent, and receive a 5.4 percent fixed
rate on $10.2 million notional principal. Suppose that LIBOR turns out to be 5.3 percent in one year and 5 percent in two years.
Including interest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest payments
for the next three years?
Note: Negative values should be indicated by parentheses.
Year 1
Year 2.
Year 3
Net Interest
Payments

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