Companies A and B have been offered the following rates per annum on a $20 million five-year loan: Company A Company B Fixed Rate 12.0% 13.4% Floating Rate LIBOR + 0.1% LIBOR + 0.6% Company A requires a floating-rate loan; Company B requires a fixed-rate loan. Design a swap that will net a bank acting as intermediary 0.1 percent per annum and be equally attractive to both companies.
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- Companies A and B are able to receive the following rates per annum on a $10 million, 5-year investment, as a function of whether the investment returns a fixed or floating rate of interest: Fixed rate Floating rate Company A 5.0 Company B | 5.6 SOFR+20 basis points SOFR Company A requires a fixed-rate investment and company B requires a floating-rate invest- ment. Design a swap that will net a bank, acting as an intermediary, 30 basis points and will appear equally attractive to each company.Answer a) and b) Problem 3: Interest Swap Companies A and B have been offered the following rates per annum on a $50 million five-year loan: Company A Company B Floating LIBOR +0.7% LIBOR +1.0% Fixed 6.0% 7.5% Company A requires a floating-rate loan and company B requires a fixed-rate loan. a) Design a swap that will net a bank, acting as an intermediary, 30 basis points (0.3%) per annum and that is equally attractive to the two companies. Illustrate the swap with a diagram. b) Determine the effective financing costs for A and B.7.18. Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment: Fixed rate Floating rate Company X Company Y 8.0% 8.8% LIBOR LIBOR Company X requires a fixed-rate investment; company Y requires a floating-rate investment. Design a swap that will net a bank, acting as intermediary, 0.2% per annum and will appear equally attractive to X and Y.
- Finance Suppose two companies, Firm A and B, both wish to borrow $10 million for five years and have been offered the following rates firm A fixed rate 4%, firm A floating rate six month LIBOT -0.1% firm B, fixed 5.2% floating six months libor +0.6% Enter into a swap agreement to exchange interest-rate payments such that: – Firm A ends up with floating-rate funds. – Firm B ends up with fixed-rate funds. explain how much A and b have after a swap?With a swap, Firm A now pays LIBOR − 0.35% With a swap, Firm B now pays 4.95%. Explain how -0.35% and 4.95% are attained with proper workingAlpha and Beta Companies can borrow for a five year term at the following rates: Alpha Beta Moody's credit rating Aa Baa Fixed rate borrowing cost 12.5% 16.0% Floating rate borrowing cost SOFR+0.72% SOFR+1.72% Required: a. Calculate the quality spread differential (QSD). b-1. Develop an interest rate swap in which both Alpha and Beta have an equal cost savings in their borrowing costs. Assume Alpha desires floating rate debt and Beta desires fixed rate debt. No swap bank is involved in this transaction. What rate should Alpha pay to Beta? b-2. What rate will Beta pay to Alpha? b-3. Calculate the all-in cost of borrowing for Alpha and Beta, respectively.3. Suppose that company B is borrowing $80 million for 5 years at LIBOR minus 20 basis points. Company B uses swap to convert floating rate borrowings into fixed-rate borrowings. / 5% borrow (Libor -0.20%) Company Company. A Libor 国 Swap (cash flow paid) Swap (cash flow received) Year LIBOR Floating Loan Net Cash rate (%) Flow Year 1 4% Year 2 4.5% Year 3 5% Year 4 6% Year 5 6.5% Total Net Cash Flow b) Why do you think that Company B prefers a fixed-rate debt?
- Two companies, Company A and Company B, are looking to enter into an interest rate swap agreement. Company A Company B Fixed rate 5% 6% Floating Rate 3-month LIBOR plus 1% 3-month LIBOR plus 1.5% Suppose that company A requires a floating-rate borrowing and company B requires a fixed- rating borrowing. A financial institution is planning to arrange a swap and requires 20bps spread. If benefits are equally shared both companies, what rate of interest will A and B pay?Use the following spot rates to answer the following questions. Maturity Spot rate (%) 1 year 4.93% 2-years 4.47% 3-years 4.12% 5-years 3.84% 10-years 3.68% Assume that Citibank is offering to sell a one-year Treasury bill next year with a rate of 5% (i.e., you can enter into a contract today to lock in a 5% return on a one-year security purchased/sold next year). Based on the above spot rates, does the Citibank offer generate any arbitrage opportunities? If so, compute the total $ profits that can be generated from this opportunity, specifying the steps you would take. Assume you will borrow/invest $1,000. O Yes: profit of $5.55/ $1000 borrowed. O No: $0 O No: Loss of $5.55/ $1000 borrowed.based on Citibank's offered rate. O Yes: $55.55/$1000 borrowed.Which loan strategy would achieve some flexibility; no exposure to credit risk but exposure to repricing risk? Question 22 options: A company borrows $1 million for one year at a fixed rate, then renew the credit annually A company borrows $5 million for five years at a fixed interest rate A company borrows $5 million for five years at a floating rate, LIBOR + 1% A company borrows $1 million for one year at LIBOR + 1%, then renew the credit annually
- Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 12% nominal rate; (b) borrow on a 3-month, but renewable on rate with 12 end-of-month payments; or (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of the least expensive type of credit, assuming 360 days per year?Finance Assuming we have the following immediate interest rates in the market: 1M - 2.5%, 2M - 2.8%, 3M - 3%, calculate the FRA 1v2 rate. Assume that each month has 30 days and a year has 360 days. If the investor has purchased this contract at the FRA rate calculated above and the interest rate in the market at the time the contract is settled is 3.2%, then in which direction the settlement flows (between the buyer and seller of the contract)? (please use the formula to solve it, thank you)Problem E: Effective cost of Short‐term Loan:ABC will be acquiring a P4,000,000 loan from XYZ Bank. 13. The detail are 6‐month term, 3% interest, P40,000 bank chargeand P50,000 compensating balance.Required:13. How much is the compound effective annual interest?