Company X and Company Y have been offered the following rates Fixed Rate Floating Rate...

Company X and Company Y have been offered the following rates

	Fixed Rate	Floating Rate
Company X	4.5%	LIBOR + 10bps
Company Y	6%	LIBOR + 40 bps

Suppose that Company X wants to borrow floating and company Y wants to borrow fixed. A swap deal will take place between the two company where an investment bank Z will act as a financial intermediary. In this action, Z aims to get a commission of 30 bps. In these circumstances,

Design a swap deal where the apparent benefits are shared equally.
What are X’s and Y’s effective borrowing rates after this swap deal?
Explain the risk carried by the financial intermediary Z in this deal.

Expert Solution

jeff jeffy answered 1 year ago

Company X and Company Y have been offered the following rates per annum on a 10...

Company X and Company Y have been offered the following rates per annum on a 10 million 5-year loan: Fixed Rate Floating Rate Company X 6.2% LIBOR + 0.3% Company Y 7.8% LIBOR + 1% Company X requires a floating rate loan; company Y requires a fixed rate loan. Design a swap that will net a bank acting as intermediary 0.3 percent per annum and which will be equally attractive to X and Y. You need to draw a diagram...

Companies X and Y have been offered the following rates per annum on 1 million dollars...

Companies X and Y have been offered the following rates per annum on 1 million dollars of investments: Company Fixed Rate (in percent) Floating Rate (in percent) X 4.32% Libor + 0.5 Y 5.54% Libor + 0.6 Company X requires a fixed rate investment and company Y requires a floating rate investment. Design a swap that will net a bank acting as a financial intermediary (F.I.) 30 percent of the benefits and be equally attractive to both the companies. Draw...

You have been offered the following 2 fixed-rate mortgage loans to finance the acquisition of your...

You have been offered the following 2 fixed-rate mortgage loans to finance the acquisition of your first apartment building that costs $1.4 million. Explain which loan you should select considering you intend to sell the property in 5 years. Please show all relevant work.a.$1m 15-year FRM @ 7.8% that fully amortizes w/ 2 point in origination feesb.$1m 15-year FRM @ 8.4% that fully amortizes w/ 1 points in origination fees

In which cases are fixed rates better than floating rates? In which cases are floating rates...

In which cases are fixed rates better than floating rates? In which cases are floating rates better than fixed rates?

should we have a floating or fixed exchange rate

Fixed or Floating Exchange Rate Regime: Debate the relative merits of fixed and floating exchange rate...

Fixed or Floating Exchange Rate Regime: Debate the relative merits of fixed and floating exchange rate regimes. From the perspective of an international business, which system is the more desirable for an international business?

ompanies A and B have been offered the following rates per annum on a $20 million...

ompanies A and B have been offered the following rates per annum on a $20 million five year loan. Fixed Rate Floating Rate A 4.2% LIBOR+0.4% B 5.4% LIBOR+0.9% You want to design a SWAP that will net a financial intermediary, that is swap dealer, 0.1% per annum and that will appear equally attractive to both companies. How much each company may benefit from this SWAP if they split potential gains equally?

What do fixed and floating exchange rates have in common, and why is the difference between...

What do fixed and floating exchange rates have in common, and why is the difference between them so significant?

Companies M and N have been offered the following rates per annum on a $100 million...

Companies M and N have been offered the following rates per annum on a $100 million eight-year loan: _________________________________________ Fixed Rate Variable Rate _________________________________________ Company M 14% LIBOR + 1% Company N 18% LIBOR + 2% _________________________________________ Company M requires a floating-rate loan; Company N requires a fixed-rate loan. A bank, acting as intermediary, will charge 1% per annum in a swap. (a) Calculate net gain from a swap that will appear equally attractive to both companies. (b) What...

If a company that had a fixed-rate liability wanted to achieve a floating-rate cost of funds...

If a company that had a fixed-rate liability wanted to achieve a floating-rate cost of funds through a swap, it would pay a: A. fixed rate to the counterparty and receive a floating rate in return from the counterparty. B. floating rate to the counterparty and pay a floating rate to the fixed-rate lender. C. floating rate to the counterparty and pay a fixed rate to the fixed-rate lender. D. floating rate to the counterparty and receive a fixed rate...

Question