A year ago a bank entered into a $50 million five year interest rate swap It agreed to pay company A each year a fixed rate of 6 and to receive in return LIBOR When the bank entered into this swap, LIBOR was 5 , but now interest rates have risen, so on a four year interest rate swap the bank could expect to pay 6 and receive LIBOR a Is the swap showing a profit or loss to the bank b Suppose that at this point company A approaches the bank and asks to terminate the swap If there are four annual payments still remaining, how much should the bank charge A to terminate

Question: A year ago a bank entered into a $50 million five-year interest rate swap. It agreed to pay company A each year a fixed rate

A year ago a bank entered into a $50 million five-year interest rate swap. It agreed to pay company A each year a fixed rate of 6% and to receive in return LIBOR. When the bank entered into this swap, LIBOR was 5%, but now interest rates have risen, so on a four year interest rate swap the bank could expect to pay 6½% and receive LIBOR.

a. Is the swap showing a profit or loss to the bank?

b. Suppose that at this point company A approaches the bank and asks to terminate the swap. If there are four annual payments still remaining, how much should the bank charge A to terminate?

Step by Step Solution

★★★★★

3.49 Rating (169 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Profit b If the bank took out a new 4year swap ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

214-B-C-F-R-A-M (318).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

Suppose that at a point in time, Barclays bank was quoting a dollars per pound exchange rate of :$ = 1.4570. Industrial bank was quoting a Japanese yen per dollar exchange rate of $: = 128.17, and...

Suppose that at some point in the execution of a push-relabel algorithm, there exists an integer 0 k are on the source...

A year ago, a bank entered into a $50 million five-year interest rate swap. It agreed to pay company A each year a fixed rate of 6% and to receive in return LIBOR. When the bank entered into this...

Please answer b- This is all the info provided A year ago, a bank entered into a $68 million five-year interest rate swap. It agreed to pay company A each year a fixed rate of 5% and to receive in...

A year ago, a bank entered into a $65 million five-year interest rate swap. It agreed to pay company A each year a fixed rate of 4% and to receive in return LIBOR. When the bank entered into this...

Option Pricing The Webber Company is an international conglomerate with a real estate division that owns the right to erect an office building on a parcel of land in downtown Sacramento over the next...

A year ago a bank entered into a $50 million five-year interest rate swap. It agreed to pay company A each year a fixed rate of 6% and to receive in return LIBOR. When the bank entered into this...

A year ago, a bank entered into a $50 million five-year interest rate swap. It agreed to pay company A each year a fixed rate of 6% and to receive in return SOFR. When the bank entered into this...

A year ago, a bank entered into a $52 million five-year interest rate swap. It agreed to pay company A each year a fixed rate 5% and to receive in return SOFR. When the bank entered into this swap,...

The following data give the results of a sample survey. The letters Y, N, and D represent the three categories. a. Prepare a frequency distribution table. b. Calculate the relative frequencies and...

1. All communications between an audit firm and the client must be reported to the audit committee. 2. Senior management must report changes in securities ownership within five days. 3. A section 404...

4.8 How is labor supply schedule affected by a decrease in real taxes?

10. In the past, a large share of expatriate managers from the United States have returned home before successfully completing their foreign assignments. Suggest some possible reasons for the high...

5. The following table tracks the main components of working capital over the life of a fouryear project. 2010 2011 2012 2013 2014 Accounts receivable 0 150,000 225,000 190,000 0 Inventory 75,000...

16. What are some of the advantages and disadvantages of Japanese keiretsus?

15. Why are pyramids common in many countries but not in the United States or United Kingdom?

Q4 1 Point Divine is a company with no debt in the capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 50% debt. The interest rate on the debt...

Over and Under, Inc. manufactures weaving looms. Before the period began, the company prepared the following manufacturing overhead budget for an expected activity level of 15,000 direct labor hours...

V Espanol The Cadet is a popular model of sport utility vehicle, known for its relatively high resale value. The bivariate data given below were taken from a sample of sixteen Cadets, each bought new...