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

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Leeson Company entered into an interest rate swap with Morley Corporation 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...

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a b By paying fixed interest and receiving variable rate interest Leeson may well be hedging agains…View the full answer


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Accounting Theory Conceptual Issues in a Political and Economic Environment

Accounting Theory Conceptual Issues in a Political and Economic Environment

ISBN: 978-1412991698

8th edition

Authors: Harry Wolk, James Dodd, John Rozycki

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Question Posted: February 12, 2016 06:23:01
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