What is the spread differential between companies

Assignment Help Financial Management

Reference no: EM131622041

Company A desires a variable-rate loan but currently has a better deal from the fixed-rate market at a rate of 13%. If Company A borrows from the variable-rate market, the cost would be LIBOR+2%. In contrast, Company B, which prefers a fixed-rate loan, has a better deal from the variable-rate market at LIBOR+3%. If Company B borrows from the fixed-rate market, the cost would be 16%. Knowing both companies’ needs, Bank C designed a swap deal. The deal is outlined in the following:

1) Company A obtains a fixed-rate loan at 13%.

2) Company B obtains a variable-rate loan at LIBOR+3%

3) Company A pays Bank C a variable rate of LIBOR+1% and receives a fixed rate of 13.3% from the bank.

4) Company B pays Bank C a fixed rate of 14.5% and receives a variable rate of LIBOR+2.0% from the bank.

What is the spread differential between Companies A and B?

a. 2%

b. .5%

c. 1.5%

d. 1%

e. 2.5%

Reference no: EM131622041

Questions Cloud

Maturity quoted at discount yield : How much would you pay for a U.S. Treasury bill with 106 days to maturity quoted at a discount yield of 2.30 percent?

Treasury strips-what is yield to maturity : A Treasury STRIPS is quoted at 58.353 and has 7 years until maturity. What is the yield to maturity?

Analyst give for stock to be considered overpriced : What range do analyst give for a stock to be considered overpriced?

Write a directory service that uses a shared memory segment : Write a directory service that uses a shared memory segment to publish name-value pairs. You will need to provide an API that allows callers to create.

What is the spread differential between companies : What is the spread differential between Companies A and B?

What is the value of the company inventory at year end : Using the Annual Report of your selected company (WALMART Annual Report 2017), What is the value of the company's inventory at year end

Assuming that market for the bonds is in equilibrium : What is the current market risk premium implied by following information about AT&T Company’s bonds, assuming that the market for the bonds is in equilibrium?

Examples of money laundering : Examples of money laundering and explain each example. How does the Honda use derivatives for funding, investing, and other price risks?

Determine the maturity value of the certificate : Use this information to determine the maturity value of the certificate on December 31, 2018? (Round your answer to the nearest whole dollar.)

User Account

All Pages