Investments, 11th Edition (exclude Access Card)
Investments, 11th Edition (exclude Access Card)
11th Edition
ISBN: 9781260201543
Author: Zvi Bodie Professor; Alex Kane; Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 23, Problem 22PS
Summary Introduction

Adequate information:

D trading issue bond $100M@7%

D trading enter in swap with another firm

D trading pay LIBOR and receive fixed interest 6% on same amount

To compute: Effective interest rate on the borrowing.

Introduction: Interest rate swap is exchange of interest between two party to reduce their interest burden. There must be one party with floating interest rate and another party with fixed interest rate.

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Skip Stephens is trying to decide whether it would be wise to consolidate his debt by borrowing funds from Syndicated Lending, a firm that he doesn’t know much about. Syndicated is an Internet lender that doesn’t post much information about the costs of the loans it offers. Some of the additional information Skip has gathered from various sources suggests the Syndicated might use such unethical practices as “bait and switch” to attract customers. Discussion questions: Is there an ethical problem? If so, what is it? What are the implications if Skip borrows from Syndicated? Should Skip borrow from Syndicated?
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