A (the Payer) enters into a fixed for floating swap arrangement with B (the Receiver). USD 360-day LIBOR at the date the swap is created: 3.72% USD 360 - day LIBOR after 1 year: 3.81% The terms of the agreement are as follows: Fixed rate 4.22% Tenor, years 2.0 Notional principal 4,000,000.0 Frequency Annual Floating rate USD 360- day LIBOR What is the net cash flow for B ( the Receiver) in year 1 ? Select one: 20,000.0 16,400.0 (16,400.0) (20,000.0)

A (the Payer) enters into a fixed for floating swap arrangement with B (the Receiver). USD 360-day LIBOR at the date the swap is created: 3.72% USD 360 - day LIBOR after 1 year: 3.81% The terms of the agreement are as follows: Fixed rate 4.22% Tenor, years 2.0 Notional principal 4,000,000.0 Frequency Annual Floating rate USD 360- day LIBOR What is the net cash flow for B ( the Receiver) in year 1 ? Select one: 20,000.0 16,400.0 (16,400.0) (20,000.0)

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 1P

See similar textbooks

Similar questions

Tuba Co. enters into a “receive variable, pay fixed” interest swap on January 1, 20x1 for a notional amount of ₱1,000,000. Under the terms of the contract, if the current rate increases above 12% (i.e., the set rate), Tuba Co. shall receive the excess interest. If the current rate falls below 12%, Tuba Co. shall pay the deficiency. Swap payment shall be made on December 31, 20x2. The current rates are as follows: Jan. 1, 20x1……………………………12% Jan. 1, 20x2……………………………15% How much is the net cash settlement on December 31, 20x2? 30,0000 payment 30,000 receipt 26,087 payment 26,087 receipt
Commercial bank A and Savings bank B entered into a swap contract. The swap has a notional principal amount of $200 million and calls for Commercial Bank A to make annual floating interest rate payment of LIBOR minus 0.75% to Savings Bank B. In return, Savings Bank B pays fixed 8% interest rate to Commercial Bank A. If LIBOR is 8%, what is the net payment?
mazon corporation and Microsoft corporation agree to enter an interest swap agreement with a nominal value of $1,000,000. The two companies enter into two-year interest rate swap contract with the specified nominal value of $1,000,000. Amazon corporation offers Microsoft corporation a fixed rate of 5% in exchange for receiving a floating rate of the LIBOR rate plus 1%. The current LIBOR rate at the beginning of the interest rate swap agreement is 4%. a) If LIBOR rate increases to 5.25% by the end of the first year what are the payment due between both companies? Assume interest payment will be made annually and the floating rate for Microsoft corporation will be calculated using the prevailing LIBOR rate at the time that interest payments are due. b) Critically evaluate interest rate swap agreements focusing on their significance and advantages in financial management.
On January 1, 20x1, ABC Co. obtained a five-year, ₱1,000,000 variable-rate loan with interest payments due at each year-end and the principal due on December 31, 20x5. As protection from possible fluctuations in current market rates, ABC Co. enters into an interest rate swap for the whole principal of the loan. Under the agreement, ABC Co. shall receive variable interest and pay fixed interest based on a fixed rate of 8%. Swap payments shall be made at each year-end. The following are the current market rates: Jan. 1, 20x1 8% Jan. 1, 20x2 9% Jan. 1, 20x3 12% 16. How much is the fair value of the interest rate swap on December 31, 20x1? (Indicate whether it is a derivative asset or liability.) a. 32,397 asset b. 32,397 liability c. 46,884 asset d. 53,223 liability
Amazon corporation and Microsoft corporation agree to enter an interest swap agreement with a nominal value of $1,000,000. The two companies enter into two-year interest rate swap contract with the specified nominal value of $1,000,000. Amazon corporation offers Microsoft corporation a fixed rate of 5% in exchange for receiving a floating rate of the LIBOR rate plus 1%. The current LIBOR rate at the beginning of the interest rate swap agreement is 4%. a) If LIBOR rate increases to 5.25% by the end of the first year what are the payment due between both companies? Assume interest payment will be made annually and the floating rate for Microsoft corporation will be calculated using the prevailing LIBOR rate at the time that interest payments are due. b) Critically evaluate interest rate swap agreements focusing on their significance and advantages in financial management.
A U.S. company has entered into an interest rate swap with a dealer in which the notional principal is $50 million.The company will pay a floating rate of LIBOR and receive a fixed rate of 5.75 percent. Interest is paid semiannually,and the current LIBOR is 5.15 percent. Calculate the first payment. Assume that floating-rate payments will be madeon the basis of 180/360 and fixed-rate payments will be made on the basis of 180/365.a. $130,308.20, the floating-rate payer will receive b. $130,308.20, the fixed-rate payer will receivec. $50 million, the fixed-rate payer will pay d. $50 million, the floating-rate payer will pay
Amazon corporation and Microsoft corporation agree to enter an interest swap agreement with a nominal value of $1,000,000. The two companies enter into two-year interest rate swap contract with the specified nominal value of $1,000,000. Amazon corporation offers Microsoft corporation a fixed rate of 5% in exchange for receiving a floating rate of the LIBOR rate plus 1%. The current LIBOR rate at the beginning of the interest rate swap agreement is 4%. If LIBOR rate increases to 5.25% by the end of the first year what are the payment due between both companies? Assume interest payment will be made annually and the floating rate for Microsoft corporation will be calculated using the prevailing LIBOR rate at the time that interest payments are due.
Commercial bank A and Savings bank B entered into a swap contract. The swap has a notional principal amount of $100 million and calls for Commercial Bank A to make annual floating interest rate payment of LIBOR minus 1% to Savings Bank B. In return, Savings Bank B pays fixed 8% interest rate to Commercial Bank A. If LIBOR is 8%, what is the net payment? Commercial Bank A Savings Bank B Savings Bank B pays Commercial Bank A by $1 million Commercial Bank A pays Savings Bank B by $1 million Net pay is 0 Can’t get the answer based on the given information
15) U.S. Bancorp and Wells Fargo & Company entered into the fixed-for floating interest rate swap with the following terms, effective for the reset date:Notional principal: $ 10 millionFixed rate: 6.5%Floating rate: 4.6 % + 220 bpsFrequency of payments: quarterlyWhich of the following is most accurate? Select one: at the settlement date the party which has a floating leg will make a payment of $7 500 at the settlement date the party which has a fixed leg will make a payment of $7 500 at the settlement date the party which has a floating leg will make a payment of $30 000 at the settlement date the party which has a floating leg will make a payment of $680 000, and the party which has a fixed leg will make a payment of $650 000 at the settlement date the party which has a floating leg will make a payment of $170 000, and the party which has a fixed leg will make a payment of $162 500 at the settlement date the party which has a fixed leg will make a payment…
E26-4 (Fair Value Hedge) Company issues a four-year, 7.5% fixed-rate interest only, nonpre-payable $1,000,000 note payable on December 31, 2000. It decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap agreement specifies that Sarazan will receive a fixed rate at 7.5% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have declined during 2001 and that Sarazan received $13,000 as an adjustment to Interest expense for the settlement at December 31, 2001. The loss related to the debt (due to interest rate changes) was $48,000. The value of the swap contract increased $48,000. a. Prepare the journal entry to record the payment of interest expense on December 31, 2001. b. Prepare the journal entry to record the receipt of the swap settlement on December 31, 2001. c. Prepare the journal entry to record the change in the fair value of the swap contract…
On January 1, 20X1, Novak, Inc., enters into an interest rate swap and agrees to receive fixed and pay variable on a notional amount of $5,000,000. The contract calls for cash settlement of the net interest amount at December 31 of each year. The yield curve is flat, and the agreement is to last until December 31, 20X9. Both the fixed annual rate and the variable annual rate at January 1, 20X1, are 7.00%. The variable interest rate is reset at the end of each year and becomes effective for the next year. On December 31, 20X1, the variable rate is reset to 8.00% per year, and on December 31, 20X2, the variable rate is reset to 5.00%. 1. Compute the fair value of the swap agreement at December 31, 20X1. Asset or a liability?2. Compute the fair value of the swap agreement at December 31, 20X2. Asset or a liability?
On January 1, 20X1, Novak, Inc., enters into an interest rate swap and agrees to receive fixed and pay variable on a notional amount of $5,000,000. The contract calls for cash settlement of the net interest amount at December 31 of each year. The yield curve is flat, and the agreement is to last until December 31, 20X9. Both the fixed annual rate and the variable annual rate at January 1, 20X1, are 7.00%. The variable interest rate is reset at the end of each year and becomes effective for the next year. On December 31, 20X1, the variable rate is reset to 8.00% per year, and on December 31, 20X2, the variable rate is reset to 5.00%. Required: Compute the fair value of the swap agreement at December 31, 20X1. Be sure to indicate whether it is an asset or a liability. Compute the fair value of the swap agreement at December 31, 20X2. Be sure to indicate whether it is an asset or a liability.