Compute an effective annualized interest rate cost for usd

Reference no: EM13897728

K3 Company wants to borrow $100 million for 5 years. Investment bankers propose to either do a syndicated Eurocredit or issue a Eurobond. The Eurocredit would be denominated in dollars, but the Eurobond would be denominated in different currencies for different markets (these issues are called tranches):

Terms: Syndicated Eurocredit Amount: USD100 million

Up-front fees: USD1.25%

Interest rate: Interest payable every 6 months; LIBOR plus 1.00% Terms: Eurobond

Tranche 1: USD 50 million, Interest rate: 3.50% Tranche 2: ¥5,952 million (equivalent of USD50 million), Interest rate 1.5%

a. What are the net proceeds in USD for K3 for the Eurocredit loan?

b. Assuming that the 6-month LIBOR in USD is currently at 2.00%, what is the effective annual interest cost for K3 for the first 6 months of the loan?

c. Compute an effective annualized interest rate cost (all-in cost) for the USD tranche of the Eurobond.

d. What information would you need to obtain the dollar all-in cost of the yen tranche?

e. What elements would you take into account to choose between the two possibilities?

Reference no: EM13897728

Questions Cloud

Is it obvious which security the treasurer should pick : Is it obvious which security the Treasurer should pick? Suppose the Treasurer believes that the 1-year LIBOR rate 1 year from now will rise to 4.50%.

What role might technology and telecommunications play : Propose one strategy to increase the participation of the nursing profession in research and lifelong learning. What role might technology and telecommunications play in promoting research participation

What goals were mandated for central banks : Are there, in general, any problems with the application of cointegration techniques to money supply functions, or with the interpretation of estimates? Can these estimates be relied upon? Discuss.

Create job description and specifications for your dream job : Create a job description and specifications for your dream job and design a compensation and benefits package related to your dream job.

Compute an effective annualized interest rate cost for usd : Compute an effective annualized interest rate cost (all-in cost) for the USD tranche of the Eurobond. What information would you need to obtain the dollar all-in cost of the yen tranche?

What use cointegration techniques in estimating money supply : What are the reasons for requiring the use of cointegration techniques in estimating the money supply? What would be the disadvantages of using ordinary least squares for such estimation? If you use both and obtain different estimates, which would..

Scope of practice for rns and nps : The scope of practice for RNs and NPs varies greatly. There are also variations in scope of practice for RNs and NPs from state to state. Review the scope of practice for RNs and NPs in your state and describe the differences in your discussion bo..

Briefly explain why a baseline audit is required : What is the definition of sustainability when viewed from an industry stance and what is sustainability - Briefly explain why a baseline audit is required.

Which of the given loan has the lowest all-in cost : The Eurobond carries a lower annual coupon of 4.25%, but the total costs of issuing the bond runs to 1.25% of the issue size. Which loan has the lowest all-in cost?

User Account

All Pages