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A company has issued floating-rate notes with a maturity of one year, an interest rate of LIBOR plus 125 basis points, and total face value of $50 million. The company now believes that interest rates will rise and wishes to protect itself by entering into an interest rate swap. A dealer provides a quote on a swap in which the company will pay a fixed rate 6.5 percent and receive LIBOR. Interest is paid quarterly, and the current LIBOR is 5 percent.
Show all your calculations and explain in details.
(a) Indicate how the company can use a swap to convert the debt to a fixed rate.
(b) Calculate the first payment made by the company. Assume that all payments will be made on the basis of 90/360
The 2- and 3-year swap rates (expressed with annual compounding) are 11% and 12% per annum. Estimate the 2- and 3-year LIBOR zero rates.
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Kingston, Inc. management is considering purchasing a new machine at a cost of $4,290,793. They expect this equipment to produce cash flows of $804,224, $824,169, $873,892, $1,026,978, $1,173,054, and $1,211,158 over the next six years. If the approp..
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Determine the degree of operating leverage for the level of production and sales319 swim trunks.
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