Enters into interest rate swap with dealer

Assignment Help Financial Management

Reference no: EM132047274

1. Firm XYZ enters into an interest rate swap with a dealer in which it pays a floating rate of LIBOR on a notional amount of $50,000,000 with semiannual payments based on 30-day months and a 360-day year. In turn, it will receive a semiannual payment based on the same $50,000,000 notional amount and 30-day months and 365-day years but calculated using a fixed rate of 4.5 percent. Suppose that the LIBOR rate is 4.0% at the beginning of the swap. The net payment to firm XYZ at the first settlement six months into the swap would be:

$102,740

$104,452

$106,164

$107,877

$109,589

2. Suppose firm ABC has access to fixed rate 7.5%, and floating rate of Euribor + 1.0%, while XYZ had access to fixed rate 6% and floating rate Euribor + 0.5%. For these two firms:

ABC has a comparative advantage in fixed while XYZ has a comparative advantage in floating rates.

XYZ has a comparative advantage in fixed while ABC has a comparative advantage in floating rates.

Only XYZ has a comparative advantage, and it is both in fixed and in floating rates.

Neither firm has a comparative advantage.

Reference no: EM132047274

Questions Cloud

Find the effective annual rate of the credit terms : Find the effective annual rate of the following credit terms: 2.1% discount if paid within 7 days or net within 30 days.

Its equity comes from retained earnings : What is the company's cost of common equity if all of its equity comes from retained earnings?

Weighted average implied by two outstanding debt issues : Company X has 8 million shares of common stock outstanding. Assume that the overall cost of debt is the weighted average implied by two outstanding debt issues

What will be your profit as measured in EUR : You decide to borrow EUR at the relatively low rates, and invest in the higher THB rate. What will be your profit as measured in EUR?

Enters into interest rate swap with dealer : Firm XYZ enters into an interest rate swap with a dealer in which it pays a floating rate of LIBOR on a notional amount of $50,000,000 with semiannual payments

What is pearson cost of common equity : Pearson's CFO estimates that the company's WACC is 14.10%. What is Pearson's cost of common equity?

What is your net profit on position : A call option on the SGD with a strike price of 0.74 USD/SGD. what is your net profit on this position?

The dividend growth rate is decreased : How will the price of a stock be affected if the dividend growth rate is decreased?

Small capitalization stocks he holds in his portfolio : An asset manager thinks that the future is rosier for larger capitalization stocks than the small capitalization stocks he holds in his portfolio.

User Account

All Pages