On Jan. 1, 2021, both ABC Corporation and its subsidiary Alpha Corporation would require loans of P10,000,000 due in 5 years time. ABC prefers a variable interest rate while Alpha prefers a fixed interest rate, but both are open to an interest rate swap. ABC's bank offered (a) 8% or (b) treasury bond rate plus 6%. Alpha's bank offered (a) 10% or (b) treasury bond rate plus 7%. If an interest rate swap was agreed, how much would one pay while the other receive annually with regard to this swap arrangement?

On Jan. 1, 2021, both ABC Corporation and its subsidiary Alpha Corporation would require loans of P10,000,000 due in 5 years time. ABC prefers a variable interest rate while Alpha prefers a fixed interest rate, but both are open to an interest rate swap. ABC's bank offered (a) 8% or (b) treasury bond rate plus 6%. Alpha's bank offered (a) 10% or (b) treasury bond rate plus 7%. If an interest rate swap was agreed, how much would one pay while the other receive annually with regard to this swap arrangement?

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 4P

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