ZuoTi.Pro
Question

A US company has entered into an interest rate swap with a dealer in which the...

A US company has entered into an interest rate swap with a dealer in which the notional principal is $50 million. The company will pay a floating rate of LIBOR and receive a fixed rate of 5.75%. Interest is paid semi-annually, and the current LIBOR=5.15%. What is the total amount that the asset manager will pay to (or receive from) the dealer? [Note: You should use a positive number to represents the amount the asset manager pay to the dealer. You should use a negative number represents the amount that asset manager receive from the dealer]

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Since a LIBOR rate is less than the fixed rate and asset manager is long on floating rate he will be in losing side and will pay to dealer given by following formula

Asset manager will pay to the dealer = notional amount * ( fixed rate - Current LIBOR)

= $50 Million * (5.75% - 5.15%)

= $300,000

0 1
Add a comment
Know the answer?
Add Answer to:
A US company has entered into an interest rate swap with a dealer in which the...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 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...

  • An interest rate swap has the following specifications: Notional principal = $100m Pay fixed rate (annual...

    An interest rate swap has the following specifications: Notional principal = $100m Pay fixed rate (annual basis) = 7% Received rate (annual basis) = LIBOR plus 1% Interest rate calculations are in quarterly basis. Counterparty X entered a pay fixed rate swap on Jan 1, 2019 with Counterparty Y. On Dec 31, 2019, the LIBOR rate is 5.5%. What should be the net cashflow?

  • Suppose that you have entered a 5-year swap to receive Japanese Yen and Pay 1-year Libor...

    Suppose that you have entered a 5-year swap to receive Japanese Yen and Pay 1-year Libor with notional principal of USD 10,000,000. At the time the swap agreement was completed the swap quote was 0.50% bid and 0.60% offered against the 1-year dollar Libor, and the spot rate was JPY100/$ (assume payments are annual). Assume that 1 year has passed. The spot exchange rate is JPY 98/USD. The dealer is quoting the following interest rates on 4-year swaps: 1.50% bid...

  • Polar Ice has entered into a 10 year interest rate swap with Southern Sun with a notional principal of $500 million. Polar Icehas agreed to pay LIBOR – the floating rate side of the swap. Southern Sun...

    Polar Ice has entered into a 10 year interest rate swap with Southern Sun with a notional principal of $500 million. Polar Icehas agreed to pay LIBOR – the floating rate side of the swap. Southern Sun has agreed to pay a fixed rate of 5%. Assume that next year, LIBOR is 5.5%. The net payment at that date will be: a. Polar Ice pays Southern Sun $5,000,000 b. Polar Ice pays Southern Sun $750,000 c. Polar Ice pays Southern...

  • Interest rate swap

    SNAP agrees to pay 1.5% per annum on a notional $8 million at 6 month intervals for 10 years. In return SNAP will receive a floating rate on the $8 million over the same time perid from HSBC. HSBC will pay floating=LIBOR+ 25bp =(LIBOR+0.25%). Current LIBOR is quoted at 1% per annum.What is the floating rate HSBC pays?Who is long?Who is short?At the first swap interval (6 month), what is the net payment and by whom?

  • 1. Aron Company enters into a 2-year US$ / Euro swap with Brun Inc. on a...

    1. Aron Company enters into a 2-year US$ / Euro swap with Brun Inc. on a notional principal amount of Euros 10 million (US$11 million at current spot rate). Aron agrees to pay Brun 5% semi-annually in Euros. Brun Inc agrees to pay US$ LIBOR6 +50 bps semi-annual rate. Based on the following market data, calculate the net Euro payment from Aron Co. (10 marks) LIBOR U SS / Euro spot Net s receipt/ (payment) IT + 6mos T +...

  • A financial institution has entered into an interest rate swap with company X. Under the terms of the swap, it receives...

    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...

  • E9.13 Interest Rate Swap: Profit and Default On July 1, 2020, Queen Corp. and Prince, Inc....

    E9.13 Interest Rate Swap: Profit and Default On July 1, 2020, Queen Corp. and Prince, Inc. entered into an interest rate swap on a notional amount of $1 million. They accepted the following offer of Intermediary: To Intermediary from Queen ..... To Intermediary from Prince...... To Queen from Intermediary .... To Prince from Intermediary......... LIBOR + 30 (floating) 2.4% (fixed) 2.3% (fixed) LIBOR + 20 (floating) ........ At inception of the swap, LIBOR = 2.3 percent. Due to an increase...

  • 4. A French wine maker is considering a currency swap that will call for the firm...

    4. A French wine maker is considering a currency swap that will call for the firm to pay dollars and receive Euros. The dollar notional principal will be $100 million. The swap calls for semiannual payments with a 180/360 adjustment. The current exchange rate is $1.60/ The term structure of the dollar and Euro LIBOR on the day of swap initiation is as follows # of days until payment | Dollar LIBOR ( Euro LIBOR 180 360 540 720 7.00...

  • Exercise A-6 Derivatives; interest rate swap; fixed-rate debt; fair value change unrelated to hedged On January...

    Exercise A-6 Derivatives; interest rate swap; fixed-rate debt; fair value change unrelated to hedged On January 1, 2018, LLB Industries borrowed $290,000 from trust Bank by issuing a two-year, 8% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2018, and designated the swap as a fair value hedge. Its intent was to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. The...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT