User Account

All Pages

Sharing the differential benefit

Assignment Help Finance Basics
Reference no: EM133062506

Problem: Company AA and company BB each need $1 million in funds and are quoted the following rates in the fixed and floating markets. AA agrees to borrow at the fixed-rate and BB agrees to borrow at the floating-rate. Show all calculations.

Debt market

AA

BB

Fixed rate funds

5.4%

6.4%

Variable rate funds

BBSW + 2%

BBSW + 2.2%

a) Structure a swap which allows the two companies to share the differential benefit equally.

b) What fixed rate would AA receive from BB if they negotiated to receive 75% share of the differential?

c) Why would a swap be arranged even if the differential is zero.

Reference no: EM133062506

Questions Cloud

Determine the approximate internal rate of return : BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. Determine the approximate internal rate of return
Advise emily of her income tax consequences : Are the shares in the blue-chip companies trading stock for Rumpole and Advise Emily of her income tax consequences arising from the above information
Calculate the call and put price of the option : Calculate the call and put price of the option using the Black Scholes Option Pricing Model.
What is the company wacc-mullineaux corporation : Mullineaux Corporation has a target capital structure of 60 percent common stock and 40 percent debt. Its cost of equity is 12.7 percent, and the cost of debt i
Sharing the differential benefit : Problem: Company AA and company BB each need $1 million in funds and are quoted the following rates in the fixed and floating markets.
What is the purpose of bank reconciliations : What is the purpose of bank reconciliations? What are dangers of not reconciling a bank account? What internal controls relate to performing bank reconciliation
Find expected share price of pinder ltd : PinderLtd is currently trading at $15 per share and is planning on a dividend of $2 per share. The capital gains tax and dividend income tax for Pinder Ltd's sh
Explain the two types of arbitrage : Participants in the foreign exchange market include speculators and arbitragers.
What amount of interest expense should be reported : On January 1, 20X3, Scarf sold bonds with par value of $667,500 at 98. Purse purchased $445,000 par value of the bonds; What amount of interest expense reported

Reviews

Write a Review

Finance Basics Questions & Answers

  Computing how much money was raised in the sale

Convex Incorporated sells 10 million shares of stock in an SEOlong dash-55 million being primary shares issued by the company and 55 million being secondary.

  Objective question related to finance

If you invest $750 every six months at 8 percent compounded semi-annually, how much would you accumulate at the end of 10-years?

  Explain how you made decision to pursue education in finance

Explain how you made the decision to pursue an education in Business or Finance. Include a summary of expenses related to that decision, such as: cost of tuition, cost of books, the interest you may pay on any loans and any other associated expens..

  What is a composition series for groups find a composition

what is a composition series for groups? find a composition series for the quaternion group

  Computational fluid dynamics

Question on  Computational Fluid Dynamics,    What do your simulations derive the drag coefficients to be? Explain any discrepancies as best as you can.

  Default risk premium on the corporate debt security

1. You are considering an investment in a one-year government debt security with a yield of 4.5 percent or a highly liquid corporate debt security with a yield of 7.25 percent. The expected inflation rate for the next year is expected to be 3 perc..

  Planning a trip-developing a product

Write a 750- to 1050-word paper in which you describe a project you have managed personally or professionally. Examples may include planning a trip, developing a product, reorganizing your staff, and so on.

  Calculate the debt-equity ratio

The DENC corporation has the unlevered cost equity of 10%.The company wants to expand its operation by issuing new debt

  Discuss about the historical accomplishments of the firm

Which statements provide the most information about the historical accomplishments of the firm and future projections?

  What is tom effective annual rate

He sold all stocks today for $127.07. During the year the stock paid dividends of $6.66 per share. What is Tom's effective annual rate?

  Calculate the rate of return for an investor

Compute the rate of return for an investor who pays $10 for a stock and sells the stock one year later for $12. The investor also receives a dividend of $0.96.

  What is the npv of the following cash flows at 10 discount

what is the npv of the following cash flows at 10 discount? year 1 1000 yeaer 2 1500 year 3 2000 year 4

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd