help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:   Fixed Rate Floating Rate Company   X 8

Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:   Fixed Rate Floating Rate Company   X 8

Finance

Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:

 

Fixed Rate

Floating Rate

Company   X

8.0%

LIBOR

Company   Y

8.8%

LIBOR

Company X requires a fixed-rate investment; Company Y requires a floating-rate investment. Design a swap that will net a bank, acting as intermediary, 0.2% per annum and will appear equally attractive to X and Y.

 

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Answer:

Total return if Company X invests at Fixed rate and Y borrows at floating rate = 8% + LIBOR = LIBOR + 8%

total return if X invests at floating rate and Y invests at fixed rate under swap = LIBOR + 8.8% = LIBOR + 8.8%

Gain under swap = 0.8%

Intermediary = 0.2%

Shared by each company = 0.6%/2 = 0.3%

Effective return will be

X = 8%+0.3% = 8.3%

Y = LIBOR + 0.3% = LIBOR + 0.3%

PFA

Download Attached File

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)