X and Y are offered the rates (per annum) below on a $5 million 10-year investment. X needs fixed rate and Y needs floating rate investment. fixed (%) float (%) X 8.0 libor Y 8.8 libor
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- Suppose you have a 2.5-year remaining on an interest rate swap with a notionalprincipal of $10, 000, 000 between Company A and Company B. Company A pays fixed rateand Company B pays the float rate. Fixed and float payments are exchanged every year andthe last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and thefloating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago,is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is3.50%.Calculate the present value of the fixed and floating legs of the swap, and determine the swap’snet present value from Company A’s perspective. Assume annual compounding for discounting.Given CHF 3,500,000 as your capital, calculate the possible profit from covered interest arbitrage. Explain specific steps that you must take to make a coveredinterest arbitrage. CHF Fr = SwissFranc BND = Brunei Darul Salam Spot rate CHF0.7359/BND 270-day forward rate CHF 0.7359/BND 9-month Brunei interest rate 5% 9-month swiss interest rate 4% Step 1 1) Different i for Base rate -Quote rate = 2) Different between Spot and Forward = (1) + (2) = invest in _ borrow in _ Step 2 explain using tableSuppose that the 9-month and 12-month LIBOR rates are 4% and 4.2%, respectively. What is the value of an FRA where 5% is received and LIBOR is paid on £1 million for the quarterly period? All rates are quarterly compounded and expressed as per annum. Assume that LIBOR is used as the risk-free discount rate. Select one: a. £478.115 b. £422.870 c. £479.062 d. £426.132
- Assume that Caterpillar’s return on investments is 2.50% per annum for the next four years. Next, suppose that Caterpillar and UBS (a financial institution) enter the following four year interest rate swap: Catepillar pays X% per annum fixed to UBS and receives LIBOR from UBS. All payments are made annually. Catepillar’s net return after it enters the swap is (LIBOR + 0.75%) per annum. In this case, Catepillar transforms ___________ into __________ and X equals to ________.a. Floating Rate Investment; Fixed Rate Investment; 1.75%b. Fixed Rate Investment; Floating Rate Investment; 3.25% c. Floating Rate Liability; Fixed Rate Liability; 3.25%d. Fixed Rate Investment; Floating Rate Investment; 3.50%e. Fixed Rate Investment; Floating Rate Investment; 1.75%What is the approximate return on a 5-year market-linked guaranteed investment certificate (GIC) that has a 25% cap rate where the relevant index had an initial index level of 9,473 and an ending index level of 15,498? 36.40% 25.00% 33.00% 63.60% Plz do fast asapGiven CHF 3,500,000 as your capital, calculate the possible profit from coveredinterest arbitrage. Explain specific steps that you must take to make a coveredinterest arbitrage.Spot rate CHF 0.7359/BND270-day forward rate CHF 0.7955/BND9-month Brunei interest rate 5%9-month Swiss interest rate 4%CHF Fr.= Swiss Franc.BND = Brunei Darul Salam.
- Suppose an investment has an initial capital cost of $1100, an ongoing cost of $6.50 per year and an annual benefit of $80. If the project lasts for 20 years and the discount rate is 7%, the internal rate of return is: Provide your answer in percentage form (e.g. an IRR of 17.66% should be entered as 17.66) to 2 decimal places. Do not include any $ or % 's in your response.A firm, whose cost of capital is 8 percent, may acquire equipment for $146,825 and rent it to someone for a period of five years. Note: Although payment of rent is typically considered to be an annuity due, treat it as an ordinary annuity when completing this problem in a spreadsheet or when using present value factors. If the firm charges $38,730 annually to rent the equipment, what are the net present value and the internal rate of return on the investment? Use Appendix D to answer the questions. Use a minus sign to enter negative values, if any. Round your answers for the net present value to the nearest dollar and for the internal rate of return to the nearest whole number. NPV: $ IRR: % Should the firm acquire the equipment? The firm acquire the equipment as the net present value is , and the internal rate of return the firm's cost of capital. If the equipment has no estimated residual value, what must be the minimum annual rental charge for the firm to earn the required 8…Assume $100,000 is available for investment and MARR =10% per year. If alternative A would earn 25% per year on inveatment of 60,000 and B would be earn 20% per year on investment of 75000 the weighted average(ROR) of A
- You are given the following long-run annual rates of return for alternative investment instruments: U.S. Government T-bills 3.50% [0.0048] Large-cap common stock 11.75 [ ] Long-term corporate bonds 5.50 [ ] Long-term government bonds 4.90 [ ] Small-capitalization common stock 13.10 [ ] The annual rate of inflation during this period was 3 percent. Compute the real rate of return on these investment alternatives.What is the present value of a 15 year investment amounting to Ᵽ 45,670 if the prevailing interest is 2.5%? Based on Item No. 1 compute for the present value of Ᵽ 45,670 in 20, 22 and 25 years if the interest rates are 5.5%, 6.8% and 9.80% respectively.The 1-year spot rate is 8%p.a. effective. The term structure of 1-year effective forwardratesisasfollows: attimet=1therateis7%,attimet=2therate is 6%, at time t = 3 the rate is 5%. (a) Determine the term structure of spot rates. (b) A fixed income security pays £10 annual coupons and it is redeemed after 4 years for £100. Compute its price at time t = 0.
