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
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
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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%...
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
3.5% per annum and receive six-month LIBOR in return on a notional
principal of $100 million with payments being exchanged every six
months. The swap has a remaining life of 16 months. Six-month
forward LIBOR for all maturities is currently 3.8% per annum. The
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for all maturities are currently 3.0% with continuous compounding.
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
interest rate swap where the floating rate is the 3-month LIBOR
rate and the fixed rate is 3%. The tenor is one year and the rate
is reset quarterly. Calculate what you will pay or receive on June
1, Sept 1, Dec 1, and March 1 next year if LIBOR rates turn out to
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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
of interest. The amounts required by the two companies are roughly
the same at the current exchange rate. The companies have been
quoted the following interest rates, which have been adjusted for
the impact of taxes. Let's assume both companies X and Y entered
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...
Company X wishes to borrow U.S. dollars at a fixed rate of
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the same at the current exchange rate. The companies are subject to
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10.0% Design a swap that will net a bank, acting...
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
bank:
(i) A three-year interest rate swap with a principal of $80
million that is worth $2 million.
(ii) A two-year foreign exchange forward contract with a
principal of $120 million that is worth –$4 million.
(iii) A long position in a seven-year option on silver (i.e.
precious metal other than gold) with a principal of $40 million
that is worth $6 million.
(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
$100 million that is worth $3 million(b) A nine-month foreign
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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