Bundle: Intermediate Financial Management, 13th + MindTap Finance, 1 term (6 months) Printed Access Card
13th Edition
ISBN: 9781337817332
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 24, Problem 1P
Summary Introduction
To determine: The net payment of Zhao.
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Commercial bank A and Savings bank B entered into a swap contract. The swap has a notional principal amount of $200 million and calls for Commercial Bank A to make annual floating interest rate payment of LIBOR minus 0.75% to Savings Bank B. In return, Savings Bank B pays fixed 8% interest rate to Commercial Bank A. If LIBOR is 8%, what is the net payment?
Company A and B has been offered the following rates per annum on a £10 million 5 - year
loan.
Company
A
Fixed (%)
Floating (%)
LIBOR + 1.2
B
LIBOR + 0.3
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 a swap that will give
a bank, acting as an intermediary 0.5% p.a. and that will appear equally attractive to both
companies. Explain how to achieve this, using diagrams and text.
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
Chapter 24 Solutions
Bundle: Intermediate Financial Management, 13th + MindTap Finance, 1 term (6 months) Printed Access Card
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