The Values provided in the Question are | |||||||
Interest rate going to rise | Swap | Floting rate to Fixed rate | |||||
Interest rate going to rise | Swap | Floting rate to Fixed rate for 7.002% P.A | |||||
Weighted Average Cost of Capital (WACC) | 12% | (6% per Six month period, compunded semiannually) | |||||
Floting rate of Interest | LIBOR + 2.00% P.A | ||||||
6.0200% | PA | 3.01 | half yearly | ||||
Fixed rate of interest | 7.0020% | PA | 3.501 | Half yearly | |||
DEBT | $5000000 | ( For Next 2 years) | |||||
Payment cycle | Semiannually | ||||||
LIBOR | 4.02% P.A | (2.01% for 6 month period) | |||||
Next payment | 6 Months | ||||||
WACC | Rate of interest | Total cost of Capital | |||||
Net Cost to company | Floating | 300000 | 150500 | 450500 | |||
Fixed | 300000 | 175050 | 475050 | ||||
Q) If LIBOR raises @ 50 basis points | |||||||
LIBOR | 2.01 | ||||||
Raises | 0.5 | ||||||
Total LIBOR | 2.51 | ||||||
Floting rate of Interest | 3.01 | (Half yearly) | |||||
LIBOR RAISES by 50 basis points | 0.5 | (Half yearly) | |||||
3.51 | |||||||
Floting rate of Interest | 3.501 | (Half yearly) | |||||
LIBOR RAISES by 50 basis points | 0.5 | (Half yearly) | |||||
4.001 | |||||||
WACC | Rate of interest | Total cost of Capital | |||||
Net Cost to company | Floating | 300000 | 175500 | 475500 | |||
Fixed | 300000 | 200050 | 500050 | ||||
-24550 | |||||||
Company is making loss of Rs 25000(475050 - 500050) If LIBOR raises @ 50 basis points | |||||||
Q) If LIBOR falls @ 50 basis points | |||||||
LIBOR | 2.01 | ||||||
Falls | 0.5 | ||||||
Total LIBOR | 1.51 | ||||||
Floting rate of Interest | 3.01 | (Half yearly) | |||||
LIBOR Falls by 50 basis points | 0.5 | (Half yearly) | |||||
2.51 | |||||||
Floting rate of Interest | 3.501 | (Half yearly) | |||||
LIBOR RAISES by 50 basis points | 0.5 | (Half yearly) | |||||
3.001 | |||||||
WACC | Rate of interest | Total cost of Capital | |||||
Net Cost to company | Floating | 300000 | 125500 | 425500 | |||
Fixed | 300000 | 150050 | 450050 | ||||
-24550 | |||||||
Company is making profit of Rs 25000(475050 - 500050) , If LIBOR falls @ 50 basis points | |||||||
CB Solutions. Heather O'Reilly, the treasurer of CB Solutions, believes interest rates are going to rise,...
CB Solutions. Heather O'Reilly, the treasurer of CB Solutions, believes interest rates are going to rise, so she wants to swap her future floating rate interest payments for fixed rates. Presently, she is paying LIBOR plus 2.00% per annum on $5,100,000 of debt for the next two years, with payments due semiannually. LIBOR is currently 4.01% per annum. Heather has just made an interest payment today, so the next payment is due six months from today. Heather finds that she...
Heather O'Reilly, the treasurer of CB Solutions, believes interest rates are going to rise, so she wants to swap her future floating-rate interest payments for fixed rates. Presently, she is paying LIBORplus2.00% per annum on $ 5 comma 100 comma 000 of debt for the next two years, with payments due semiannually. LIBOR is currently 3.97% per annum. Heather has just made an interest payment today, so the next payment is due six months from now. Heather finds that she...
A financial institution has entered into an interest rate swap with company X. Under the terms of the swap, it receives 10% per annum and pays six-month LIBOR on a principal of $10 million for five years. Payments are made every six months. Suppose that company X defaults on the sixth payment date (end of year 3) when the interest rate (with semiannual compounding) is 8% per annum for all maturities. What is the loss to the financial institution? Assume...
a) ABC Ltd is interested to sell an existing fixed-for-floating interest rate swap to one of its corporate clients. Under the existing swap, ABC Ltd pays 10% pa and receive 3-month LIBOR on a $10 million principal. Cash flows are exchanged every quarter. The swap has a remaining life of 16 months. Data shows that the 3-month LIBOR rate 1 month ago was 11.8% pa; 2 months’ ago it was 12% pa; 3 months’ ago it was 12.2% pa and...
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...
1 Netflix Co. that has been floating rate notes now believes that interese rise I decides to protect itself nainst this possibility by entering into an in rate swap with a dealer. In this swap, the notional principal is $80 million and the company will pay a fixed rate of 5.5 percent and receive LIBOR. The current LIROU is 5 percent. Calculate the first payment and indicate which party (Netflix or the dealer) prys which Assume that payments will be...
1. Shirley wants to go on a trip to Hawaii. She budgets that she can save $108 at the end of every month, and interest in her account is 8% compounded biweekly. By looking at prices, she knows that the trip will cost her $4813 total. How long in years (round to two decimal places) will it take before she can go on her trip? 2. Joey buys a new Honda civic for $18997. He agrees to payments at the...
Please help by providing explanations/step-by-step processes for solutions. Thank you in advance! 1. You are 20 years old. Starting at age 70 (in 50 years), it is expected that you will begin to receive a $1,500 monthly check from Social Security. You expect to live until you are 86 years old. Assuming a discount rate of 5%, what is the value today of the expected stream of Social Security payments? 2. 5. Suppose an investment promises to pay you $10,000...
-Which one of the following statements concerning interest rates is correct? A. Savers would prefer annual compounding over monthly compounding. B. The effective annual rate decreases as the number of compounding periods per year increases. C. The effective annual rate equals the annual percentage rate when interest is compounded annually. D. Borrowers would prefer monthly compounding over annual compounding. E. For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate. -Nick got a...
Spreadsheet 1: Amortization Table Create an amortization table in MS-Excel in the format shown below: Scenario: 2 years ago Janice got a $100,000, 15-year mortgage with an annual interest rate of 6% and monthly payments. 1) What is her monthly payment? 2) How much does she owe today (after 24 payments)? 3) How much will she owe in 3 years (after 60 payments)? 4) How much will she owe in 3 years (after 60 payments) if she makes an extra...