Fearing that market interest rate will fluctuate, Bethlehem with credit rating of Baa decides to engage...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Fearing that market interest rate will fluctuate, Bethlehem with credit rating of Baa decides to engage in an interest rate swaps for their 100 million variable debt with US steel in January 1, 2017. US steel, with credit rating of Aaa, has long term fixed debt of $100 million at the time of transaction. According to the swaps contract, Bethlehem will pay 8 percent interest rate to US steel and, in turn US steel pays T-bill minus 0.25% to Bethlehem steel. At the time of swap transaction bond market quotes the following interest rates for these tow credit ratings on annual basis. Fixed Variable Baa 9% T+ 0.25% Aaa b. Income statements: Aaa: Baa: 7.5% T 1. Which company is exposed to the market interest rate fluctuation after this transaction? Why? 2. How much do Bethlehem and US steel save interest expenses for 2017 with interest rate swaps contract? Please show your computations. 3. Discuss the impact of this derivative on each firm's a. Balance sheet: Aaa: Baa: Fearing that market interest rate will fluctuate, Bethlehem with credit rating of Baa decides to engage in an interest rate swaps for their 100 million variable debt with US steel in January 1, 2017. US steel, with credit rating of Aaa, has long term fixed debt of $100 million at the time of transaction. According to the swaps contract, Bethlehem will pay 8 percent interest rate to US steel and, in turn US steel pays T-bill minus 0.25% to Bethlehem steel. At the time of swap transaction bond market quotes the following interest rates for these tow credit ratings on annual basis. Fixed Variable Baa 9% T+ 0.25% Aaa b. Income statements: Aaa: Baa: 7.5% T 1. Which company is exposed to the market interest rate fluctuation after this transaction? Why? 2. How much do Bethlehem and US steel save interest expenses for 2017 with interest rate swaps contract? Please show your computations. 3. Discuss the impact of this derivative on each firm's a. Balance sheet: Aaa: Baa:
Expert Answer:
Answer rating: 100% (QA)
2 Bethlehem saving out of swap is as follows Cost under no swap for Bethlemhem and U... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Leticia has to hedge the interest rate risk of her holdings of $6,480,000 in Treasury bonds by buying or selling futures contracts. Determine the type of transaction and the price of each contract if...
-
Class Median Midpoint, x Income, I 19.5 $12,965 An individual's income varies with age. The table shows the median income I of individuals of different age groups within the United States for a...
-
Neville Enterprises has a number of fully depreciated assets that are still being used in the main operations of the business. Because the assets are fully depreciated, the president of the company...
-
Find the variation of the displacement with time, \(x(t)\), of a damped single-degree-of-freedom system with \(\zeta=1.0\) for the following initial conditions: a. \(x(t=0)=x_{0}=0.2 \mathrm{~m},...
-
Depletion is calculated in a manner similar to which depreciation method? a. Accelerated method b. Straight-line method c. Units-of-production method d. Double-declining-balance method
-
Consider the following condensed financial statements of Secure Life, Inc. The companys target rate of return is 12%. Requirements 1. Calculate the companys ROI. Round all of your answers to four...
-
Airports have always faced the problem of long waiting lines and waiting times at security gates. Waiting lines can be as long as hundreds of yards and waiting times can sometimes be hours. In their...
-
Based on the two tables and the attributes below, write SQL commands for each question to retrieve the data from the database. tblSales InvoiceNumber InvoiceDate CustomerNumber Sales OrderNumber...
-
1.3 (a)The forces in the members of a roof truss are as follows: T1 2T2 3T3 2T1 - 3T3 + 4T3 1 T1 +3T2 + 3T3 Determine T1, T2 and T3 by using the inverse matrix method. (9)
-
If the number of fan motors available for production is increased by 7 0 , will the shadow price for that constraint change? Explain. Yes, the shadow price will change because 7 0 is greater than the...
-
An investment opportunity will cost $50,000 today. The investment promises the following yearly cash flows plus an unknown balloon payment at the end of the fourth year. You would like a 15% APR...
-
If we understand "risk" as something different from "uncertainty" - how is the situation at UR reflective of a risky situation? Suggest, specifically, how UR might re-structure its supply chain to...
-
Consider the placement and the design of a new aquatic center for a medium-sized US city. Identify the stakeholders for each decision. What might their goals/objectives be? How might you ensure that...
-
The book was written in 2019. Since then how have these five vendors product offering changed? Do these vendors have new products? Have they made important acquisitions? Have they been acquired? Have...
-
microsoft access Add an expression to display 1,2,3, or 4 for the corresponding class codes FR, SO, JR, and SR.Sort the query on this expression so that the data will display in order of FR, SO, JA...
-
You've been asked to take over leadership of a group of paralegals that once had a reputation for being a tight-knit, supportive team, but you quickly figure out that this team is in danger of...
-
United Airlines has a beta of 1.50. The standard deviation in the market portfolio is 22% and United Airlines has a standard deviation of 66%. a. Estimate the correlation between United Airlines and...
-
Cell Phone is a cellular firm that reported net income of $50 million in the most recent financial year. The firm had $1 billion in debt, on which it reported interest expenses of $100 million in the...
-
One of the arguments made for having legislation restricting hostile takeovers is that unscrupulous speculators may take over well-run firms and destroy them for personal gain. Allowing for the...
-
Consider the monthly simple excess returns of 10 U.S. stocks from January 1990 to December 2003 for 168 observations. The 3-month Treasury bill rate on the secondary market is used to compute the...
-
Which provides stronger evidence against H0: a P-value of 0.05 or a P-value of 0.50?
-
A test is made of H0 : = 6 versus H1: 6. a. The test statistic is z = 0.75. Find and interpret the P-value. b. The test statistic is z = 2.20. Find and interpret the P-value. c. Which provides...
Study smarter with the SolutionInn App