Company A needs 5-year fixed rate financing and can borrow in fixed rate market at 5% per year. Company A can also borrow in floating-rate market at LIBOR + 0.5%. Company B needs 5-year floating rate financing and can borrow in floating rate market at LIBOR + 2% per year. Company B can also borrow in fixed rate market at 5.5%. c. If the investment bank that arranges a swap charges 0.2% fee, and company A has more negotiating power, how should swap savings be shared. Assume company A's savings will be twice that of company B's savings.
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- In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $42,000 and the interest rate is 8.50%, the borrower “pays” 0.0850 × $42,000 = $3,570 immediately, thereby receiving net funds of $38,430 and repaying $42,000 in a year. a. What is the effective interest rate on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. What is the effective annual rate on a 1-year loan with an interest rate quoted on a discount basis of 18.50%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)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).3. Suppose that company B is borrowing $80 million for 5 years at LIBOR minus 20 basis points. Company B uses swap to convert floating rate borrowings into fixed-rate borrowings. / 5% borrow (Libor -0.20%) Company Company. A Libor 国 Swap (cash flow paid) Swap (cash flow received) Year LIBOR Floating Loan Net Cash rate (%) Flow Year 1 4% Year 2 4.5% Year 3 5% Year 4 6% Year 5 6.5% Total Net Cash Flow b) Why do you think that Company B prefers a fixed-rate debt?
- 1. Companies A and B have been offered the following rates per annum on a $50 million five-year loan: Company A Company B Fixed rate 4.0% 5.2% Floating rate SOFR+0.2% SOFR+0.6% Company A requires a floating-rate loan; company B requires a fixed-rate loan. Design a swap that will net a financial institute, acting as intermediary, 0.2% per annum and that will appear equally attractive to both companies.= Consider two loans with one-year maturities and identical face values: a(n) 8.4% loan with a 1.03% loan origination fee and a(n) 8.4% loan with a 4.5% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate? Why? The EAR in the first case is%. (Round to one decimal place.) er clBank M offers the following terms for a $10 million loan: interest rate: 8 percent for one year on funds borrowed fees: 0.5 percent of the unused balance for the unused term of the loan Bank N offers the following terms FOR A $10 million loan interest rate 6.6 percent for one year on fund borrowed fees: 2 percent origination fee a. Which terms are better if the firm intends to borrow the $10 million for the entire year? b. If the firm plans to use the funds for only three months, which terms are better?
- OZ Bank finances a $53000 2-year fixed-rate loan with a $70000 1-year fixed-rate CD. Use the repricing model to determine (a) the OZ Bank's repricing (or funding) gap using a 1- year maturity bucket, and (b) the impact of a 30 basis point (0.3%) increase in interest rates on OZ Bank's annual net interest income? OA. $17000,-$51 O B. $70000, $210 O C. -$70000,-$210 O D. -$70000, $210 OE. -$17000, $51This questi Consider a loan of $7700 at 6.8% compounded semiannually, with 18 semiannual payments. Find the following. (a) the payment necessary to amortize the loan (b) the total payments and the total amount of interest paid based on the calculated semiannual payments (c) the total payments and total amount of interest paid based upon an amortization table. (a) The semiannual payment needed to amortize this loan is $ 545.94. (Round to the nearest cent as needed.) (b) The total amount of the payments is $ 9827.07 (Round to the nearest cent as needed.) The total amount of interest paid is $ 2127.07 (Round to the nearest cent as needed.) (c) The total payment for this loan from the amortization table is $ (Round to the nearest cent as needed.) The total interest from the amortization table is $ (Round to the nearest cent as needed.)A firm has obtained a 3-year floating rate loan paying a premium of 2%. Given the prime rate is 5%. Immediately after the loan is taken, the prime rate increases to 6%. Which of the following is TRUE? Question 49 options: 1) The interest rate payable is 3%. 2) The interest rate payable is 5%. 3) The interest rate payable is 7%. 4) The interest rate payable is 8%.
- In order to borrow $100,000 for a 5% loan on a discount loan basis with a 5% compensating balance; the firm will actually have to borrow?4) I have an NOI of$172,400. The lender indicated that I can borrow funds at a 7.0% interest rate with a 25 year amortization and 5 year term at a 1.20 Debt Service Ratio(DCR). The lender will charge 2 points. a. What is the monthly payment? b.What is the APR (annual percentage rate) if fully amortized? C.What is the APR at the end of the loan term? d.What if I pay the loan off at the end of the second year, what is my APR? e.What if there was a prepayment penalty of 1.5% at the end of year 4, what is myAPR?Set Corporation is deciding which of two banks to borrow from on a 1-year basis. Bank A charges an 18 percent interest rate payable at maturity. Bank B charges a 17 percent interest rate on a discount basis. Which loan is cheaper and its effective interest rate? choose the letter of the correct answera. Bank A with 18%b. Bank B with 18%c. Bank A with 20.5%d. Bank B with 20.5%e. Both banks with 20.5%