Find out the price of the swap from corporation's viewpoint, Financial Management

Assignment Help:

A company enters into a five-year interest rate swap along with a swap bank where it  agrees to pay the swap bank a fixed-rate of 9.75 percent yearly on a notional amount of DM15,000,000 and receive LIBOR - ½%.  As of the second reset date, find out the price of the swap from the corporation's viewpoint; assume that the fixed-rate at which it can borrow has risen to 10.25 percent.

Solution: On the reset date, the present value of the future floating-rate payments the corporation will receive from the swap bank based upon the notional value will be DM15,000,000. The present value of a hypothetical bond issue of DM 15,000,000 along with three remaining 9.75% coupon payments at the new fixed-rate of 10.25 percent is DM14,814,304.  This sum denotes the present value of the remaining payments the swap bank will receive from the corporation.  So, the swap bank should be willing to buy and the corporation should be willing to sell the swap for DM15, 000, 000 - DM14, 814, 304 = DM185,696.


Related Discussions:- Find out the price of the swap from corporation's viewpoint

Importance of the cost of capital, Q. Importance of the Cost of Capital? ...

Q. Importance of the Cost of Capital? Importance of the Cost of Capital:- (1) Useful in Designing the Capital Structure: - The perception of cost of capital plays a very imp

Short-term finnce, briefly discuss the three approaches to the short-term f...

briefly discuss the three approaches to the short-term financing problems and examples of each

Analytical way of viewing financial problems of a firm, Analytical way of v...

Analytical way of viewing financial problems of a firm The new approach is an analytical way of viewing financial problems of a firm. The main contents of this tactic are what

Explain the operating profit margin - performance ratios, Operating profit ...

Operating profit margin Operating profit margin    =   (PBIT / Turnover) x 100% This is the ratio of operating profit to turnover or sales. A high operating profit margin is

Enumerate about the turnkey operations, Enumerate about the Turnkey operati...

Enumerate about the Turnkey operations An illustration of a turnkey business would be a franchise for example immediate brand, systems and product with exclusive territory. A t

Define is it preferable to use an import quota or a tariff, Suppose the gov...

Suppose the government wants to limit imports of a certain good.  Is it preferable to use an import quota or a tariff?  Why? Modification in domestic consumer and producer surp

Explain sunk cost and opportunity cost in npv, In the NPV analysis, sunk co...

In the NPV analysis, sunk cost is not relevant whereas opportunity cost is for project evaluation. Requirements: Explain and justify the above statement about sunk cost and

Explain the pricing spill over effect, Explain the pricing spill-over effec...

Explain the pricing spill-over effect. Suppose a firm operating in a segmented capital market (such as China, for example) decides to cross-list its stock in New York or London.

What do you mean by utility, Q. What do you mean by Utility? Utility: -...

Q. What do you mean by Utility? Utility: - Financial leverage assists considerably the financial manager while devising the capital structure of the company. A high financial l

Write Your Message!

Captcha
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