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Company A desires a variable-rate loan but currently has a better deal from the fixed-rate market at a rate of 13%. If Company A borrows from the variable-rate market, the cost would be LIBOR+2%. In contrast, Company B, which prefers a fixed-rate loan, has a better deal from the variable-rate market at LIBOR+3%. If Company B borrows from the fixed-rate market, the cost would be 16%. Knowing both companies’ needs, Bank C designed a swap deal. The deal is outlined in the following:
1) Company A obtains a fixed-rate loan at 13%.
2) Company B obtains a variable-rate loan at LIBOR+3%
3) Company A pays Bank C a variable rate of LIBOR+1.5% and receives a fixed rate of 13.3% from the bank.
4) Company B pays Bank C a fixed rate of 14.5% and receives a variable rate of LIBOR+2.0% from the bank.
How much is the cost saving to Company A?
You have $49,762 on deposit with no outstanding checks or uncleared deposits. One day you write a check for $11,618 and then deposit a check for $7,880. What is your net float?
A description of the important factors, in addition to quantitative factors, that were considered when making this capital budgeting decision.
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A friend says she expects to earn 13.50% on her portfolio with a beta of 1.50. You have a two-asset portfolio including stock x and a risk free security. The expected return of stock x is 10.50 and the beta is 1.10. The expected return on the risk fr..
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