Question

In: Accounting

An Italian company, New Century Corp, enters into a 2-year interest rate swap with Northern European...

An Italian company, New Century Corp, enters into a 2-year interest rate swap with Northern European Bank. The notional principle of the swap is €100 million. Payments will be made semiannually on the basis of 180/360 (180 days in the settlement period and 360 days per year). New Century will pay a fixed rate of 5% and receive floating rate Euribor plus 2%. The realization of the 180-day Euribor rates are as below: Current: 3% In 6 months: 2.8% In 12 months: 3.4% In 18 months: 3.7% A. Determine the initial exchange of cash that occurs at the start of the swap. B. Determine the semiannual payments for the first year (first half, second half) C. Determine the final exchange of cash that occurs at the end of the swap.

Please show full detail steps.

Solutions

Expert Solution


Related Solutions

An Italian company, New Century Corp, enters into a 2-year interest rate swap with Northern European...
An Italian company, New Century Corp, enters into a 2-year interest rate swap with Northern European Bank. The notional principle of the swap is €100 million. Payments will be made semiannually on the basis of 180/360 (180 days in the settlement period and 360 days per year). New Century will pay a fixed rate of 5% and receive floating rate Euribor plus 2%. The realization of the 180-day Euribor rates are as below: Current: 3%              In 6 months: 2.8%          In...
An Italian company, New Century Corp, enters into a 1-year interest rate swap with Northern European...
An Italian company, New Century Corp, enters into a 1-year interest rate swap with Northern European Bank. The notional principle of the swap is €100 million. Payments will be made semiannually on the basis of 180/360 (180 days in the settlement period and 360 days per year). New Century will pay a fixed rate of 4% and receive floating rate Euribor plus 1%. The 180-day Euribor rates are as below: Current: 2.8%       In 1 quarter: 3%   In 2 quarters:...
A French firm enters into a two-year interest rate swap in euros on April 1, 2005....
A French firm enters into a two-year interest rate swap in euros on April 1, 2005. The swap is based on a principal of €80 million, and the firm will receive 7% fixed and pay six-month Euribor. Swap payments are semiannual. The 7% fixed rate is quoted as an annual rate using the European method, so the implied semiannual coupon is 3.44% [since (1.0344)2 = 1.07]. Two years later, the swap is finally settled, and the following Euribor rates have...
On January, 20x1, Cedula Co. enters into an interest rate swap for a notional amount of...
On January, 20x1, Cedula Co. enters into an interest rate swap for a notional amount of 1,000,000. Under the agreement, ABC Co. shall receive variable interest and pay fixed interest based on a fixed rate of 14%. The interest rate swap will be settled net on December 31, 20x2. The following are the current market rates: Jan.1, 20x1 14% Jan.1, 20x2 12% Provide Journal entries.
A US company enters into a currency swap in which pays a fixed rate of in...
A US company enters into a currency swap in which pays a fixed rate of in euros and the counterparty pays a fixed rate of in dollars. The notional principals are $million and] million. Payments are made semi-annually and on the basis of 30 days per month and 360 days per year. For the initial exchange of payments that take place at the beginning of the swap, is the US company paying USD or EURO to the counterparty? [Type in...
Walmart Corp. enters into a currency swap with a dealer in which it pays a fixed...
Walmart Corp. enters into a currency swap with a dealer in which it pays a fixed rate in euros, and the dealer pays a fixed rate in U.S. dollars. The notional principals are $385 million and €350 million (equivalent in value at the current exchange rate of $1.1 per euro.) The fixed rates are 4.8% in dollars and 5.2% in euros. Payments are made semiannually on the basis of 180/360. Semiannually: Question 17 options: Walmart makes interest payment of €18.2...
. Consider the following interest-rate swap: • the swap starts today, January 1 of year 1...
. Consider the following interest-rate swap: • the swap starts today, January 1 of year 1 (swap settlement date) • the floating-rate payments are made quarterly based on actual / 360 • the reference rate is 3-month LIBOR • the swap rate is 6% • the notional amount of the swap is $40 million • the term of the swap is three years (a) Suppose that today’s 3-month LIBOR is 5.7%. What will the fixed-rate payer for this interest rate...
Capital One Bank enters into a $10,000,000 quarterly‐pay plain‐vanilla interest rate swap as the fixed‐rate payer...
Capital One Bank enters into a $10,000,000 quarterly‐pay plain‐vanilla interest rate swap as the fixed‐rate payer at a swap rate of 6% based on a 360‐day year. The floating‐rate payer, First Bank, agrees to make payments at 90‐day LIBOR plus a 0.6% margin. The 90‐day LIBOR rate currently stands at 4%. LIBOR‐90 rates are as follows:  90 days from today = 4.5% 180 days from today = 5.1% 270 days from today = 5.6% 360 days from today = 6.0%...
Interest Rate Swap: Use the following borrowing information to structure an interest rate swap between Counterparties...
Interest Rate Swap: Use the following borrowing information to structure an interest rate swap between Counterparties A and B, two large, corporate organizations.  Notional Principal: $50 million  Tenor of Swap: Three years  Settlement: Semi-annually; Rates set in advance  Counterparty A is very creditworthy, with capacities to borrow in the fixed rate market at a rate of 4.5%, and in the floating rate market at LIBOR+90.  Counterparty B is fairly creditworthy, with capacities to borrow in...
Interest Rate Swap On January 1, 2013, Marshall Corp. issues $500,000 in 5.0% fixed rate debt...
Interest Rate Swap On January 1, 2013, Marshall Corp. issues $500,000 in 5.0% fixed rate debt with interest payments due every six months. Concurrently, Marshall enters into an interest rate swap in which it receives 5.0% fixed and pays variables at average LIBOR + 65 bp on a nontional amount of $500,000. On June 30, 2013, LIBOR averaged 3.2% during the six-month period. The estimated fair value of the swap to Marshall increased $50,000 on June 30, 2013, and the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT