Leeson Company entered into an interest rate swap with Morley Corporation on January 1, 2003. The notional

Question:

Leeson Company entered into an interest rate swap with Morley on January 1, 2003. The notional amount of the swap is $20,000,000. Leeson will pay Morley a fixed annual rate of 8 percent. Morley will pay Leeson LIBOR plus 1 percent. Settlement is to be made every six months and the contract lasts for three years. The annual variable rates based on LIBOR plus 1 percent are:
July 1, 2003……………..8.26%
January 1, 2004…………8.32%
July 1, 2004……………..8.18%
January 1, 2005…………7.92%
July 1, 2005……………..7.90%
January 1, 2006…………8.06%
Required:
(a) Set up a schedule showing the net receipts or payments for Leeson.
(b) Why would Leeson enter into a strategy of this type?
(c) Has Leeson benefited from this transaction?
(d) What dangers are present? Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...