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

Net present value (npv), Net Present Value (NPV) In corporate finance, ...

Net Present Value (NPV) In corporate finance, the current value (the value of cash to be received in the future expressed in today's dollars) of an investment in excess of the

Identify an analytic theme for fictitious business, 1. identify an analytic...

1. identify an analytic theme or goal for a fictitious business or something that you are working on (e.g. Maximize revenue in a car dealership) 2. Build an Enterprise Bus Matri

Write a note on underwriting, Question 1 Explain the components of Indian ...

Question 1 Explain the components of Indian Financial System Question 2 Write a short note on Primary and Secondary markets Question 3 Explain the Investment optio

Define policy formulation - accounts receivable management, Q. Define Polic...

Q. Define Policy formulation - accounts receivable management This is concerned with set up the framework within which management of accounts receivable in an individual compan

Leverage, Evaluate d importance of leverage in a financial management of a ...

Evaluate d importance of leverage in a financial management of a small sacle business

Describe the sales forecasting process, Describe the sales forecasting proc...

Describe the sales forecasting process. It is a group effort. Sales and marketing personnel generally offer assessments of demand and the competition. Production personnel genera

Income statement, Income Statement A formal statement of the parts...

Income Statement A formal statement of the parts used in determining an organization net income that is called profit and loss statement. The several categories reported

Define the term- earnings per share, Define the term- Earnings per share (E...

Define the term- Earnings per share (EPS) EPS = Profit available to ordinary shareholders (PAT) / Weighted average number of shares in issue(p per share) This ratio illustra

Hy would a borrower be willing to pay and a lender demand, Would there be p...

Would there be positive interest rates on bonds in a world with absolutely no risk no default risk, maturity risk, and so on? Why would a, borrower be willing to pay and a lender d

Role of sponsor, Role of Sponsor In the establishment of mutual fund tr...

Role of Sponsor In the establishment of mutual fund trust, the main role is played by the sponsors. Both the trustees and the fund managers or the asset management company have

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