A Ltd, a low rated firm desires a fixed rate, long term loan, It currently has access to floating interest rate funds at a margin of 1.5% over the prime rate. Its direct borrowing cost is 13%in the fixed rate bond market. B Ltd which prefers a floating rate loan has access to fixed rate funds in cedi-bond market at 11% and floating rate funds at prime rate 1/2%. you are required to : (i)To explain how A Ltd and B Ltd can use swap to their advantage. (ii)Calculate how much Asaba Ltd would pay for its fixed rate funds.
A Ltd, a low rated firm desires a fixed rate, long term loan, It currently has access to floating interest rate funds at a margin of 1.5% over the prime rate. Its direct borrowing cost is 13%in the fixed rate bond market. B Ltd which prefers a floating rate loan has access to fixed rate funds in cedi-bond market at 11% and floating rate funds at prime rate 1/2%. you are required to : (i)To explain how A Ltd and B Ltd can use swap to their advantage. (ii)Calculate how much Asaba Ltd would pay for its fixed rate funds.
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 10MC
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A Ltd, a low rated firm desires a fixed rate, long term loan, It currently has access to floating interest rate funds at a margin of 1.5% over the prime rate. Its direct borrowing cost is 13%in the fixed rate bond market. B Ltd which prefers a floating rate loan has access to fixed rate funds in cedi-bond market at 11% and floating rate funds at prime rate 1/2%.
you are required to :
(i)To explain how A Ltd and B Ltd can use swap to their advantage.
(ii)Calculate how much Asaba Ltd would pay for its fixed rate funds.
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