TripleA and TripleB have been offered the following rates per annum on a $10 million 5-year...
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TripleA and TripleB have been offered the following rates per annum on a $10 million 5-year loan: S&P credit rating Fixed rate Floating rate TripleA AAA 10.5% LIBOR TripleB BBB 13.6% LIBOR + 1% Assume TripleA requires a floating-rate debt and TripleB requires a fixed-rate debt. a) Design an interest rate swap such that the total gain from entering this swap contract is split equally between TripleA and TripleB, whilst the swap bank obtain 0.1% per annum. b) Assume that a swap bank is NOT required to enter interest rate swaps. Suppose TripleA can raise $$10 million in both fixed-rate and floating-rate markets at the above interest rates. Design an interest rate swap such that the total gain from the swap for TripleA is two times larger than that for TripleB. c) What are the types of risk facing TripleA and TripleB in this agreement? TripleA and TripleB have been offered the following rates per annum on a $10 million 5-year loan: S&P credit rating Fixed rate Floating rate TripleA AAA 10.5% LIBOR TripleB BBB 13.6% LIBOR + 1% Assume TripleA requires a floating-rate debt and TripleB requires a fixed-rate debt. a) Design an interest rate swap such that the total gain from entering this swap contract is split equally between TripleA and TripleB, whilst the swap bank obtain 0.1% per annum. b) Assume that a swap bank is NOT required to enter interest rate swaps. Suppose TripleA can raise $$10 million in both fixed-rate and floating-rate markets at the above interest rates. Design an interest rate swap such that the total gain from the swap for TripleA is two times larger than that for TripleB. c) What are the types of risk facing TripleA and TripleB in this agreement?
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Answer rating: 100% (QA)
a To design an interest rate swap that equally splits the total gain between TripleA and TripleB while the swap bank obtains 01 per annum we can struc... View the full answer
Related Book For
Understanding Financial Accounting
ISBN: 9781119406921
2nd Canadian Edition
Authors: Christopher D. Burnley
Posted Date:
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