Question

In: Accounting

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.

Solutions

Expert Solution

The Solution is given in the picture attached. In the question, since maket interest rate as on 31-Dec-20x2 is not given, we have assumed it to be 15% so that journal entries on date of settlement i.e. 31-Dec-20x2 can be shown.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

5. You want to enter a pay-fixed, receive-floating interest rate swap with a notional amount of...
5. You want to enter a pay-fixed, receive-floating interest rate swap with a notional amount of $15 million and quarterly payments for one year. Interest calculations will use a 90/360 convention. The yield curve is as follows:Term Rate 90 3.0% 180 3.2% 270 3.3% 360 3.5% a. (5 points) What is the correct fixed rate term for this swap? b. (5 points) In 90 days, how much money will you pay or receive (net)? c. (5 points) Assume that you...
12. A bank enters into an interest rate cap with a ceiling of 12%. The notional...
12. A bank enters into an interest rate cap with a ceiling of 12%. The notional principal is $50 million, and LIBOR is the index used to represent current interest rates. What is the first year's payment if LIBOR is 9%? A. Bank pays $1.5 million. B. Bank receives $1.5 million. C. $0. D. Bank receives $3million.
A semi-annual interest rate swap on a notional principal of A$200 million has a remaining life...
A semi-annual interest rate swap on a notional principal of A$200 million has a remaining life of nine months. Under the terms of the swap, BATCO pays a fixed rate of 4% p.a. (compounded semi-annually) and receives six-month BBSW. What is the current value of the swap to BATCO if sixmonth BBSW rate was 2.6% p.a. (compounded semi-annually) three months ago and the current BBSW/swap curve in Australia is as follows: Term (months) % p.a (c.c) 3 2.2 6 2.5...
calculate the notional amount for this notional IO with a coupon rate of 4.25%, backed by...
calculate the notional amount for this notional IO with a coupon rate of 4.25%, backed by the 4.25% collateral pass-through MBS upon which the CMO is created. (20 points) Tranche Principal Coupon A 3.00% B 3.50% C 3.75% D 4.00% IO 4.25%
. 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...
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...
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%...
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 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:...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT