Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 25, Problem 10CQ
Summary Introduction
To explain: The cash flow that will occur as a result of the swap.
Interest Rate Swap:
Swapping the interest rate helps the companies by allowing them to exchange their interest payments at the decided amount for a mutually agreed period of time. It is done to hedge towards adverse interest rate movements and to get a balance between fixed and variable debt.
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Students have asked these similar questions
In an interest swap contract, the exchange of cash flow calculated in each period is based upon the:
a.
notional principal.
b.
present value of notional principal.
c.
swap principal.
d.
face value of interest-bearing bond.
Interest-rate swaps are:
Answer
a. Exchanges of equity securities for debt securities
b. Agreements involving swapping of options contracts
c. Agreements that allow both parties to convert floating interest rates to fixed interest rates.
d. Agreements between two parties to exchange periodic interest-rate payments over some future period
In an interest rate swap borrower pays
O a. Premium
O b. Coupon cashflows
O c. Repayment cashflows
Od. Discount to cashflows
Chapter 25 Solutions
Corporate Finance
Ch. 25 - Prob. 1CQCh. 25 - Prob. 2CQCh. 25 - Prob. 3CQCh. 25 - Prob. 4CQCh. 25 - Prob. 5CQCh. 25 - Prob. 6CQCh. 25 - Option Explain why a put option on a bond is...Ch. 25 - Hedging Interest Rates A company has a large bond...Ch. 25 - Prob. 9CQCh. 25 - Prob. 10CQ
Ch. 25 - Prob. 11CQCh. 25 - Prob. 12CQCh. 25 - Prob. 13CQCh. 25 - Prob. 14CQCh. 25 - Hedging Strategies William Santiago is interested...Ch. 25 - Prob. 16CQCh. 25 - What is the monthly mortgage payment on Jerrys...Ch. 25 - Prob. 2MCCh. 25 - Prob. 3MCCh. 25 - Prob. 4MCCh. 25 - Suppose that in the next three months the market...Ch. 25 - Are there any possible risks Jennifer faces in...
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- Explain Extended Method for Interest Rate Swap Accounting.arrow_forwardDescribe the mechanics of a fixedrate to floating-rate swap.arrow_forwardAn agreement between two parties to exchange a series of specified periodic cash flows in the future based on some underlying instrument or price is a(n): a. forward agreement. b. futures contract. c. interest rate collar. d. option contract. e. swap contract. Clear my choicearrow_forward
- What is a swap? Describe the mechanics of a fixed-rate swap and a floating-rateswap.arrow_forwardA credit default swap (CDS) is a privately negotiated contract which you can use to: Question 2 options: hedge prepayment risk on a pool of mortgages. hedge default risk on fixed income assets. hedge interest rate risk on fixed income assets. hedge exchange rate risk on euroyen deposits.arrow_forwardDescribe a credit default swap and its purpose. Note the rationale for the protection buyer and the protection seller and the cash flow between the two parties. Describe four key credit events that would trigger payment under a credit default swap.arrow_forward
- Which of the following most accurately describes the behavior of credit default swaps?a. When credit risk increases, swap premiums increase.b. When credit and interest rate risk increase, swap premiums increase.c. When credit risk increases, swap premiums increase, but when interest rate risk increases, swap premiums decrease.arrow_forwardFINANCIAL RISK MANAGEMENT Briefly explain what is Interest Rate Swap and who are the parties in an Interest Rate Swap?arrow_forwardDescribe who would use a swap and why? How many different types of swaps are they and why? Describe how a company might benefit from interest rate currency swaps?arrow_forward
- Explain what a first-to-default credit default swap is. Does its value increase or decrease as the default correlation between the companies in the basket increases? Explain.arrow_forwardA trasury security in which periodoc coupon interest payments can be seperate from eachother ad from the orinciple payment is called a: A. STRIP B. T-notes C. T-Bonds D. G. O. Bond E. Revenue bondarrow_forwardWhy might a company become involved in an interestrate swap contract to receive fixed interest payments andpay variable?arrow_forward
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