Company A wants to issue bonds and expects the interest rates to decline in the future....
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Company A wants to issue bonds and expects the interest rates to decline in the future. Company B wants to issue bonds and expects the interest rates to rise in the future. The market interest rate for Company A and Company B are as follows: Market Rates Fixed interest rate Floating interest rate Company A 4.5% EURIBOR Company B 7% EURIBOR+ 1% Company A, Company B, and Swap Bank enter an interestrate swap agreement with annual payments. The swap agreement is set up in the following way: . Company A issues fixedrate bonds at an 4.5% rate and pays EURIBOR to the Swap Bank. Company B issues floatingrate bonds at an EURIBOR+ 1% and pays 5.5% to the Swap Bank. • Swap Bank pays 5,0% to Company A and EURIBOR to Company B. How much will Company B save periodically on interest rates thanks to this swap agreement? Company A wants to issue bonds and expects the interest rates to decline in the future. Company B wants to issue bonds and expects the interest rates to rise in the future. The market interest rate for Company A and Company B are as follows: Market Rates Fixed interest rate Floating interest rate Company A 4.5% EURIBOR Company B 7% EURIBOR+ 1% Company A, Company B, and Swap Bank enter an interestrate swap agreement with annual payments. The swap agreement is set up in the following way: . Company A issues fixedrate bonds at an 4.5% rate and pays EURIBOR to the Swap Bank. Company B issues floatingrate bonds at an EURIBOR+ 1% and pays 5.5% to the Swap Bank. • Swap Bank pays 5,0% to Company A and EURIBOR to Company B. How much will Company B save periodically on interest rates thanks to this swap agreement?
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Related Book For
Foundations of Financial Management
ISBN: 9781259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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