Question: Company A issues floating rate debt at LIBOR + 1 percent and Company B can issues fixed rate debt at 9.4 percent. They engage in

Company A issues floating rate debt at LIBOR + 1 percent and Company B can issues fixed rate debt at 9.4 percent. They engage in the following swap: A will make a fixed 7.95 percent payment to B, and B will make a floating rate payment equal to LIBOR to A. What are the resulting net payments of A and B?

a.A pays a fixed rate of 9 percent, B pays LIBOR + 1.5 percent.

b.A pays a fixed rate of 8.95 percent, B pays LIBOR + 1.45 percent.

c.A pays LIBOR plus 1 percent, B pays a fixed rate of 9.4 percent.

d.A pays a fixed rate of 7.95 percent, B pays LIBOR.

e.None of the answers above is correct.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

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

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

6. Choosing Restore from the home window file menu will - a. restore a compressed backup file to a working data file b. restore the size of the window you are currently working in c. delete the...

FAA APARTMENT LEASE CONTRACT NAA NATIONAL APARTMENT ASSOCIATION Date of Lease Contract: (when the Lease Contract is filled out) This is a binding document. Read carefully before signing. Moving In -...

Evaluate the potential gains and losses for forwards,future,call options,put options and swaps. Outline and describe the different risks that each type of derivative contract faces. Describe...

Company A can issue floating rate debt at LIBOR + 1 percent and can issue fixed rate debt at 9 percent. Company B can issue floating rate debt at LIBOR + 1.4 percent and can issue fixed rate debt at...

LIBOR Mini-Case: - Capri Enterprises can issue floating rate debt at LIBOR +2.00% or fixed rate debt at 10.00%. - Bari Manufacturing can issue floating rate debt at LIBOR +3.10% or fixed rate debt at...

Question 1 Company A offers $30 per share to acquire Company B. Company's B estimated value of equity is $50 million, it has debt of 5 million, and outstanding shares of 2 million. This will probably...

1.) Companies manage risk in may ways. Which of the following is NOT one of them. A. Minimize the magnitude of loss associated with adverse event B. Transfer the risk to an insurance company C....

Company A can issue floating-rate debt at LIBOR + 1% and can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR +1.5% and can issue fixed-rate debt at 9.4% Suppose A issues...

Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%. Suppose...

The exhibit below reflects a summary of performance for a single item of a retail store's inventory for the month ended April 30: (CIA adapted) Actual Results Flexible Budget Variances Flexible...

Helping Hand Corp is interested in purchasing some new material-handling equipment right after the beginning of the new year. They would like to finance the new equipment with cash and marketable...

A large tank holds 2 0 0 gallons of a solution with 4 0 pounds of dissolved salt. A brine solution with a concentration of 2 pounds of salt per gallon is admitted into the tank at a rate of 5 gallons...

To what extent, if any, was the legal positivists separation of law from morality to blame for the success of the Third Reich?

The solubility of a gas in a liquid increases with increasing pressure. To understand the above statement, consider a familiar example: cola. In cola and other soft drinks, carbon dioxide gas remains...

1. __________ numbers that can be expressed in a form of exact quotient of two numbers 2. __________ a symbols that represents a radical expression 3. __________ numbers which are the result of...

Part 2 Analytical questions(4*10=40marks (Write answer in your handwriting and upload solution as single PDF file in Moodle) 11. Implement the given function F(A, B, C, D)given in the truth table...

In February 2009, Treasury 8.5s of 2020 yielded 3.2976% (see Figure 3.1). What was their price? If the yield rose to 4%, what would happen to the price? FIGURE 3.1 Sample Treasury bond quotes from...

Design a minimum-mass symmetric three-bar truss (the area of member 1 and that of member 3 are the same) to support a load P, as was shown in Fig. 2.9. The following notation may be used: Pu = P cos...

In 1984 the country of Morocco in an attempt to determine the average amount of time that tourists spend in that country on a visit tried two different sampling procedures. In one, they questioned...

To prove Eq. (7.25), define the following notation: X j i time spent in state i on the j th visit to this state; Ni(m) number of visits to state i in the first m transitions In terms of this...

In a semi-Markov process, let tij denote the conditional expected time that the process spends in state i given that the next state is j . (a) Present an equation relating i to the tij . (b) Show...