Question
In: Finance
Consider the following interest rate swap: Company A can borrow from a bank at 8% fixed...
Consider the following interest rate swap: Company A can borrow from a bank at 8% fixed or LIBOR + 1% floating (borrows fixed); Company B can borrow from a bank at 9.5% fixed or LIBOR + .5% (borrows floating). Company A prefers floating and Company B prefers fixed. By entering into a swap agreement, both A and B are better off than they would be borrowing from the bank with their preferred type of loan, and the swap dealer makes .5%. Please draw the chart of cash flows and show all possible solutions. (40 points)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Consider a Plain Vanilla Interest Rate Swap agreement that AAA pays a fixed rate of 3%...
Consider a Plain Vanilla Interest Rate Swap agreement that AAA
pays a fixed rate of 3% per annum and BBB pays LIBOR rate at the
end of year for 3 years on a notional principal of $100m. In
return, AAA receives LIBOR rate per annum and BBB receives a fixed
rate of 3%.
The LIBORs to be applied for cash flows are 2.8%, 3.3%,
3.5%.
PMT
LIBOR
Cash Flow (floating)
Cash Flow (Fixed)
Cash Flow (Net)
1
2.8%
2
3.3%...
. 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
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180 days from today = 5.1%
270 days from today = 5.6%
360 days from today = 6.0%...
In an interest rate swap offered by a bank, Company A could pay 3.5% per annum...
In an interest rate swap offered by a bank, Company A could pay
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All other...
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...
4 a. Suppose you are the fixed rate payer in a $10million interest rate swap where...
4 a. Suppose you are the fixed rate payer in a $10million
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Company X wishes to borrow U.S. dollars at a fixed rate of interest. Company Y wishes...
Company X wishes to borrow U.S. dollars at a fixed rate of
interest. Company Y wishes to borrow Japanese yen at a fixed rate
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into a SWAP contract with a bank B that requires 25 basis...
Company X wishes to borrow U.S. dollars at a fixed rate of interest. Company Y wishes...
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A bank has the following transactions with another BBB-rated bank: (i) A three-year interest rate swap...
A bank has the following transactions with another BBB-rated
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(ii) A two-year foreign exchange forward contract with a
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(iii) A long position in a seven-year option on silver (i.e.
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(a) What is the capital requirement under Basel...
1.A bank has the following transaction with a AA-rated corporation (a) A two-year interest rate swap...
1.A bank has the following transaction with a AA-rated
corporation (a) A two-year interest rate swap with a principal of
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exchange forward contract with a principal of $150 million that is
worth –$5 million(c) A long position in a six-month option on gold
with a principal of $50 million that is worth $7 million What is
the capital requirement under Basel I if there is no netting? What
difference does...
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