What are the net borrowing costs for a and b

Assignment Help Finance Basics
Reference no: EM133118705

Consider two corporations A and B. A, a high-quality borrower, wishes to raise $50 million in five-year floating rate funding. The company can borrow fixed rate at 5% and floating rate at Libor-0.5%. B, a lower rated company, wishes to raise $50 million in five-year fixed rate funding. B finds it can borrow fixed at 7% and floating at Libor+0.5%. Suppose A borrows at the fixed rate; B at the floating rate and they both enter into a swap, whereby A pays B the Libor and receives a fixed rate of 7% - y.

a. If y=1.25%, what are the net borrowing costs for A and B?

b. (True/False) A and B would be better off, if they do not use swaps. Justify your answer in one sentence.

c. In case they decide to go with the above swap, What value of y will be more agreeable for both A and B?

Reference no: EM133118705

Questions Cloud

What is the current market price of the bonds : The current market rate of interest on the Fresh Water, Inc. bonds is 10.67 percent. What is the current market price of the bonds
Future value interest factor : You have won a total of $75,000.00 from a contest participating in a reality television program. The prize money will be used to make future investments and tha
What is total contribution margin : Schister Systems uses the following data in its Cost-Volume-Profit analyses: Total Sales $325,000. What is total contribution margin
Create eer logical model assessment : Create EER Logical Model Assessment - Identify and report on attributes and determine data types that are required for your database ensuring
What are the net borrowing costs for a and b : Consider two corporations A and B. A, a high-quality borrower, wishes to raise $50 million in five-year floating rate funding. The company can borrow fixed rate
Interest rate on the three-year bond : If the expected path of one-year interest rates over the next three years is 4%, I%, and l %, then the expectations theory predicts that today's interest rate o
Create uml and conceptual model : Create UML and Conceptual Model - Determine the user-needs analysis for the technical requirements and report your findings
Differentiate between fixed and variable costs : In what types of decisions can break-even analysis help managers? Differentiate between fixed and variable costs.
Explain the portfolios of investments : Considering each of the following portfolios of investments, which would be preferred by a risk averse investor and explain why. The risk-free rate is 3 percen

Reviews

Write a Review

Finance Basics Questions & Answers

  A 10-year 1000 face value bond has an 85 annual coupon the

a 10-year 1000 face value bond has an 8.5 annual coupon. the bond has a current yield of 8. what is the bondsyield to

  Price-earnings ratio of the ten largest companies

What was the price/earnings ratio of the ten largest companies - by market capitalisation - on the ASX at the end of January 2020 and at Friday 20 March 2020?

  Compute the after tax cost of leasing

If Ace's after-tax cost of borrowing is 16%, compute the after tax cost of leasing.

  What does the irs use for its depreciable basis guidelines

What constitutes a Section 1231 asset? How does the Internal Revenue Service (IRS) treat multiple Section 1231 gains and losses?

  What is the real interest rate that the northern lightians

The Republic of Northern Lights, a small stable country in the North Atlantic, is experiencing a negative inflation (deflation) at this time. The annual inflation rate is -4%. If the nominal rate of interest is 6%, what is the real interest rate that..

  What would be the fair price of the happy call today

Illustrate graphically the value of a long position in the happy call at the end of the year.

  Protect and secured the file with a password

Is there a way to protect and secured the file with a password, checked compatibility, and removed inappropriate information on Powerpoint?

  Provide examples of fixed and variable costs

Provide some examples of fixed and variable costs from your workplace determine which costs may have both variable and fixed components.

  Compute break-even point and margin of safety ratio

Poole Company has collected the following data after its first year of sales. Net sales were $1,600,000 on 100,000 units; selling expenses $240,000; direct materials $511,000; direct labor $285,000;

  What volatility smile is likely to be observed

What volatility smile is likely to be observed when: - Both tails of the stock price distribution are less heavy than those of the lognormal distribution?

  Free cash flow to the firm for kfc

Free Cash Flow to the Firm for KFC is projected to be $1.6 billion next year and is expected to grow by 2% annually thereafter. If the WACC is 6%,

  Is it true that an option can never sell for lessthan

is it true that an option can never sell for lessthan you can make by exercising the option

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!

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