Homework Answers
1. Lax regulation of the financial sector
Reason: Alan Blinder in his book 'After the music stopped' explains that lax regulations in the financial sector along with numerous credit default swaps given out to people as home mortgages led to the financial crisis
2. Pay a fixed interest rate and receive a fixed interest rate
Reason: This will help reduce the risk borne by holding the securities
3. Borrow from Fed
Reason: This will only increase loan liability of the bank and not its reserves
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QUESTION 1 10 points According to Alan Blinder, which of the...
On January 1, 2020, Iniesta Corporation invested in Kasaba Inc.'s two-year, 10% notes
On January 1, 2020, Iniesta Corporation invested in Kasaba Inc.'s two-year, 10% notes, with interest receivable quarterly. Iniesta entered into a two-year interest rate swap agreement on January 1, 2020 and designated the swap as a fair value hedge. The agreement called Iniesta to make payment based on a 10% fixed interest rate on a notional amount of 200,000 and to receive interest based on a floating interest rate. The contract called for cash settlement of the net interest amount...
Faise QUESTION 21 Boeing has entered into 10 year interest rate swap with Bank America with...
Faise QUESTION 21 Boeing has entered into 10 year interest rate swap with Bank America with a notional principal of $500 million. Boeing has agreed to pay LIBOR- the floating rate side of the swap, Bank America haségreed to pay a fixed rate of 5.75%. Assume that next year, LIBOR is 6.5%. The net payment at that date will be Boeing pays Bank America $2,500,000 Bank America pays Boeing $5,000,000 Bank America pays Boeing $507,500,000 Bank America pays Boeing $3,750,000...
Question 17 0.1 pts Georgetown Investments Corp. ("GIC") on its most recent balance sheet has $750...
Question 17 0.1 pts Georgetown Investments Corp. ("GIC") on its most recent balance sheet has $750 million of assets financed with $200 million of floating-rate short-term debt, $300 million of long- term fixed rate debt, and $250 million of common stock. Its total assets include $150 million of floating-rate short-term interest-bearing notes. Taylor Smith, one of the major stockholders, told the CEO of GIC at the last board meeting that she was very concerned about the company's financial risk exposures...
My main question is how would you calculate the value of the change in Fair Value...
My main question is how would you calculate the value of the
change in Fair Value of the interest rate swap? Thanks
How did he get the Values of $6,472 for March 31 & $11,394
for June 30th
APPENDIX A Exercise A-2 (Static) Derivatives; interest rate swap; fixed rate debt [LOA-2] On January 1, 2021, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. LLB entered into a two-year interest rate swap...
QUESTION 1 Company X wants to borrow $10,000,000 floating for 5 years & company Y wants...
QUESTION 1 Company X wants to borrow $10,000,000 floating for 5 years & company Y wants to borrow $10,000,000 fixed for 5 years. Company X and Y fixed rate borrowing costs are 10% and 12% respectively. Company X and Y floating rate borrowing costs are LIBOR and LIBOR plus 1.5% respectively. A swap bank proposes the following interest only swap X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR -0.15 percent; in exchange...
QUESTION # 2 Consider a 1-year swap initiated on January 10th, 2013, between Sony and Samsung, Under the terms of the swap contract Sony is agreed to pay Samsung an interest of 6% per annum on a...
QUESTION # 2 Consider a 1-year swap initiated on January 10th, 2013, between Sony and Samsung, Under the terms of the swap contract Sony is agreed to pay Samsung an interest of 6% per annum on a notional principle of Max. Marks 2+1] $200 n Samsung agrees to pay a 3-month LIBOR rate on the same principal. In addition, the payments are exchanged every three months, andthe6%is quoted with quarterly compounding. Following Table shows the LIBOR Samsung (complete the Table...
On January 1, 2017, Four Brothers Manufacturing borrowed $10 million from Guiffrie Bank by signing a...
On January 1, 2017, Four Brothers Manufacturing borrowed $10 million from Guiffrie Bank by signing a three-year, 8.0% fixed-rate note. The note calls for interest to be paid annually on December 31. The company then entered into an interest rate swap agreement with Herman Bank. The agreement calls for Four Brothers to receive a fixed-rate of 8.0% and pay a variable LIBOR rate based on a $10 million notional amount each December 31 for three years. Four Brothers will receive...
This problem illustrates how to [1] determine the payments of an interest rate swap, [2] value...
This problem illustrates how to [1] determine the payments of an interest rate swap, [2] value the swap, [3] and hedge with the swap. The problem is based on the WSJ article “School District, Bank in Swap clash”. The setting: The local school district was planning to build a new high school. The estimated cost of the building was around $100M. To finance the building the school district needed to issue a bond for about $58M. It had two choices:...
Financial Derivatives (FIN429) Tuesday 07-May-2019 QUESTION # 10 Max. Marks 10-4+2+2+2] o. prefers to borrow at...
Financial Derivatives (FIN429) Tuesday 07-May-2019 QUESTION # 10 Max. Marks 10-4+2+2+2] o. prefers to borrow at fl Co. and Cocoa Co. want to borrow USD 150 million for 10 years. Monoca at Hoating rate of interest, while Cocoa Co. has a preference to borrow at interest. Suppose that National Bank offers the followings to Monoca Co. and Cocoa Companies Quotes Fixed LIBOR-1% | 85% Monoca Co. | LIBOR+ 1.5% 9.5% Floating F cocoa Co. | aronl b hee e 1....
Modified duration gap of 3 year and market value of assets of 3 million. Manager expects interest rates to go up from 9% to 10%. Question: show how can the manager immunize the bank assets from intere...
Modified duration gap of 3 year and market value of assets of 3 million. Manager expects interest rates to go up from 9% to 10%. Question: show how can the manager immunize the bank assets from interest rate change by using following 2 Swaps: Swap 1: pay T-bill +1% in exchange for 7% fixed rate. Swap 2: pay fixed rate of 7% in exchange for a floating rate of T-bill +1%. Assume modified duration on 7% fixed rate security is...
Faise QUESTION 21 Boeing has entered into 10 year interest rate swap with Bank America with a notional principal of $500 million. Boeing has agreed to pay LIBOR- the floating rate side of the swap, Bank America haségreed to pay a fixed rate of 5.75%. Assume that next year, LIBOR is 6.5%. The net payment at that date will be Boeing pays Bank America $2,500,000 Bank America pays Boeing $5,000,000 Bank America pays Boeing $507,500,000 Bank America pays Boeing $3,750,000...
Question 17 0.1 pts Georgetown Investments Corp. ("GIC") on its most recent balance sheet has $750 million of assets financed with $200 million of floating-rate short-term debt, $300 million of long- term fixed rate debt, and $250 million of common stock. Its total assets include $150 million of floating-rate short-term interest-bearing notes. Taylor Smith, one of the major stockholders, told the CEO of GIC at the last board meeting that she was very concerned about the company's financial risk exposures...
My main question is how would you calculate the value of the
change in Fair Value of the interest rate swap? Thanks
How did he get the Values of $6,472 for March 31 & $11,394
for June 30th
APPENDIX A Exercise A-2 (Static) Derivatives; interest rate swap; fixed rate debt [LOA-2] On January 1, 2021, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. LLB entered into a two-year interest rate swap...
QUESTION 1 Company X wants to borrow $10,000,000 floating for 5 years & company Y wants to borrow $10,000,000 fixed for 5 years. Company X and Y fixed rate borrowing costs are 10% and 12% respectively. Company X and Y floating rate borrowing costs are LIBOR and LIBOR plus 1.5% respectively. A swap bank proposes the following interest only swap X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR -0.15 percent; in exchange...
QUESTION # 2 Consider a 1-year swap initiated on January 10th, 2013, between Sony and Samsung, Under the terms of the swap contract Sony is agreed to pay Samsung an interest of 6% per annum on a notional principle of Max. Marks 2+1] $200 n Samsung agrees to pay a 3-month LIBOR rate on the same principal. In addition, the payments are exchanged every three months, andthe6%is quoted with quarterly compounding. Following Table shows the LIBOR Samsung (complete the Table...
Financial Derivatives (FIN429) Tuesday 07-May-2019 QUESTION # 10 Max. Marks 10-4+2+2+2] o. prefers to borrow at fl Co. and Cocoa Co. want to borrow USD 150 million for 10 years. Monoca at Hoating rate of interest, while Cocoa Co. has a preference to borrow at interest. Suppose that National Bank offers the followings to Monoca Co. and Cocoa Companies Quotes Fixed LIBOR-1% | 85% Monoca Co. | LIBOR+ 1.5% 9.5% Floating F cocoa Co. | aronl b hee e 1....
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