Company A can borrow at either an 8.5% fixed rate or a floating rate of prime + 1.75% Company B can borrow at either a floating rate of prime + 1.25% or a fixed rate of 8.65% Company A prefers a floating rate and Company B prefers a fixed rate. Which one of the following terms would be acceptable to both Company A and B if they opted to enter an interest rate swap?
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- Company A can borrow at either an 8.5% fixed rate or a floating rate of prime + 1.75% Company B can borrow at either a floating rate of prime + 1.25% or a fixed rate of 8.65% Company A prefers a floating rate and Company B prefers a fixed rate. Which one of the following terms would be acceptable to both Company A and B if they opted to enter an interest rate swap? a) 8.6% fixed for prime + 1.2% floating b) 8.5% fixed for prime + 1.75% floating c) 8.65% fixed for prime + 1.25% floating d) 8.6% fixed for prime + 1.3% floating e) 8.65% fixed for prime + 1.3% floatingCompany A can borrow money at a fixed rate of 9 percent or a variable rate set at prime plus 1 percent. Company B can borrow money at a variable rate of prime plus 2 percent or a fixed rate of 8.25 percent. Company A prefers a fixed rate and company B prefers a variable rate. 1. Compute the potential gain for the concerned parties through the swap deal.Company A can borrow money at a fixed rate of 9 percent or a variable rate set at prime plus 1 percent. Company B can borrow money at a variable rate of prime plus 2 percent or a fixed rate of 8.25 percent. Company A prefers a fixed rate and company B prefers a variable rate. A swap dealer can bring them together for a commission of 1% on the swap deal. a) Compute the potential gain for the concerned parties through the swap deal? b) Show a swapping arrangement, ensuring that both Company A and B are better off and the swap dealer gets the 1% cut.
- Alpha and Beta Companies can borrow for a five year term at the following rates: Alpha Beta Moody's credit rating Aa Baa Fixed rate borrowing cost 12.5% 16.0% Floating rate borrowing cost SOFR+0.72% SOFR+1.72% Required: a. Calculate the quality spread differential (QSD). b-1. Develop an interest rate swap in which both Alpha and Beta have an equal cost savings in their borrowing costs. Assume Alpha desires floating rate debt and Beta desires fixed rate debt. No swap bank is involved in this transaction. What rate should Alpha pay to Beta? b-2. What rate will Beta pay to Alpha? b-3. Calculate the all-in cost of borrowing for Alpha and Beta, respectively.Company X and Company Y have been offered for the following rates per annum on a RM30 million 5-year loan. Company X Company Y Fixed rate 12.5% 12.5% Floating rate 3-month KLIBOR+2% 3-month KLIBOR + 2.75% Preferred loan Fixed rate Floating rate You work for KL Bank, and thinks that the quoted rate are arbitrageable by means of an interest rate swap. Design a fixed-for-floating interest rate swap. Show the percentage gain to each party, assuming that the mispricing is split equally among three parties.A company FORTIS, issued a 5 years loan with a gloating rate EURIBOR + 0.75%. It sets up a fixed / variable swap with a bank. The quotation of the swap is as follows: 5-year swap: EURIBOR /3.75%. What is the cost of borrowing of this company after swap? a. 0.75%b. 4.5%c. EURIBOR + 4.5%d. None of the above
- Company A and B have been offered the following rates per annum on a £50 million, 10 - year loan. Company A borrows at a fixed rate of 6% and floating rate of (LIBOR + 0.4)%. Company B borrows at a fixed rate of 7% and a floating rate of (LIBOR + 0.6)%. a) Company A requires a floating rate loan, whereas company B requires a fixed rate loan. In which market does company A have a comparative advantage? Design at least two different swaps that will give a bank, acting as an intermediary 0.6% p.a. and that will appear equally attractive to both companies. Explain how to achieve this, using diagrams and text. b) Design a Swap that is the most beneficial to company A. Explain using text and diagram. c) Suppose that company A has an asset worth £10 million yielding an interest of 7%. Suppose that A is a company based in Japan. Explain how it can use a currency swap to transform the asset to an asset paying Yen (currency in Japan).Company A can borrow money at a fixed rate of 9 percent or a variable rate set at prime plus 1 percent. Company B can borrow money at a variable rate of prime plus 2 percent or a fixed rate of 8.25 percent. Company A prefers a fixed rate and company B prefers a variable rate. A swap dealer can bring them together for a commission of 1% on the swap deal. 1. Show a swapping arrangement, ensuring that both Company A and B are better off and the swap dealer gets the 1% cut.Company A wants to borrow US Dollar (USD) at a floating rate of interest and Company B want to borrow Australian Dollar (AUD) at a fixed rate of interest. They have been quoted the following rates by Bank C. USD AUD Company A LIBOR +0.5% 5.0% Company B LIBOR+1.0% 6.5% Develop an interest rate swap that will net the bank 50 basis point spread and will appear equally attractive to Company A and Company B. Explain your answer.
- Carter Enterprises can issue floating-rate debt at LIBOR + 2% or fixed-ratedebt at 10%. Brence Manufacturing can issue floating-rate debt at LIBOR +3.1% or fixed-rate debt at 11%. Suppose Carter issues floating-rate debt andBrence issues fixed-rate debt. They are considering a swap in which Cartermakes a fixed-rate payment of 7.95% to Brence and Brence makes a payment of LIBOR to Carter. What are the net payments of Carter and Brence ifthey engage in the swap? Would Carter be better off if it issued fixed-ratedebt or if it issued floating-rate debt and engaged in the swap? Would Brencebe better off if it issued floating-rate debt or if it issued fixed-rate debt andengaged in the swap? Explain your answers.Tyson Inc. is entering into a 3-year pay-euros and receive-dollars cross currency swap. The 3-year swap interest rates are quoted in the table below. At what rate will Tyson receive dollars and at what rate will Tyson pay euros? Question 8 options: Receive at 2.28% and pay at 1.89% Receive at 2.23% and pay at 1.95% Receive at 2.28% and pay at 1.95% Receive at 2.23% and pay at 1.89%A company can borrow funds at LIBOR minus 50 basis points. There is a swap available where one side pays 7% and the other side pays LIBOR-1%. The company is concerned that interest rates will increase and, thus, wants to change the nature of its liability from paying floating to paying fixed rate. What rate can the company pay on its lability after it engages in the swap?