CORPORATE FINANCE- ACCESS >C<
12th Edition
ISBN: 9781307447248
Author: Ross
Publisher: MCG/CREATE
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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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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.
In an interest rate swap borrower pays
O a. Premium
O b. Coupon cashflows
O c. Repayment cashflows
Od. Discount to cashflows
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
Chapter 25 Solutions
CORPORATE FINANCE- ACCESS >C<
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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- 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_forwardWhich 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_forward
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