Axil Corp. has not tapped the Deutsche mark public debt market because of concern about a likely appreciation of that currency and only wishes to be a floating-rate dollar borrower, which it can be at LIBOR + 1%. Bevel Corp. strongly prefers fixed-rate DM debt, but it must pay 1.5% more than the 6 1/4% coupon that Axil's DM notes would carry. Bevel, however, can obtain Eurodollars at LIBOR + ½%. Suppose a bank charges .8% to arrange the swap and Axil and Bevel split the resulting cost savings. Then Axil will pay _____ for its floating-rate money and Bevel will pay _____ for its fixed-rate money. a) LIBOR - .7%; 7.5% b) LIBOR + .4%; 7.15% c) LIBOR; 7.45% d) LIBOR + .5%; 6.75% Ans: b Section: Interest rate
Axil Corp. has not tapped the Deutsche mark public debt market because of concern about a
likely appreciation of that currency and only wishes to be a floating-rate dollar borrower, which
it can be at LIBOR + 1%. Bevel Corp. strongly prefers fixed-rate DM debt, but it must pay 1.5%
more than the 6 1/4% coupon that Axil's DM notes would carry. Bevel, however, can obtain
Eurodollars at LIBOR + ½%.
Suppose a bank charges .8% to arrange the swap and Axil and Bevel split the resulting cost
savings. Then Axil will pay _____ for its floating-rate money and Bevel will pay _____ for its
fixed-rate money.
a) LIBOR - .7%; 7.5%
b) LIBOR + .4%; 7.15%
c) LIBOR; 7.45%
d) LIBOR + .5%; 6.75%
Ans: b
Section: Interest rate
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