Question

Suppose that Dummy Ltd. can borrow $100mil long-term at a cost of 8% p.a. and Intelligent...

Suppose that Dummy Ltd. can borrow $100mil long-term at a cost of 8% p.a. and Intelligent Ltd. can borrow $100mil short-term at a cost equal to the 6-month LIBOR rate plus a spread of 100 bps. Both companies agree to enter into an interest rate swap agreement whereby Dummy Ltd. pays the LIBOR rate plus 50 bps. to Intelligent Ltd., and Intelligent Ltd. pays 8.5% p.a. fixed to Dummy Ltd. What is the net borrowing cost to each company?

A.

Net borrowing cost to Dummy Ltd. = LIBOR rate. Net borrowing cost to Intelligent Ltd. = 8% p.a.
B.

Net borrowing cost to Dummy Ltd. = LIBOR rate + 100 bps. Net borrowing cost to Intelligent Ltd. = 9% p.a.
C.

Net borrowing cost to Dummy Ltd. = LIBOR rate + 50 bps. Net borrowing cost to Intelligent Ltd. = 9% p.a.
D.

Net borrowing cost to Dummy Ltd. = 9% p.a. Net borrowing cost to Intelligent Ltd. = LIBOR rate + 100 bps.
E.

Net borrowing cost to Dummy Ltd. = LIBOR rate. Net borrowing cost to Intelligent Ltd. = 9% p.a.
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
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
Similar Questions
Suppose that Company A borrows $100mil long-term at a cost of 8% p.a. and Company B...
Suppose that Company A borrows $100mil long-term at a cost of 8% p.a. and Company B can borrow $100mil short-term at a cost equal to the 6-month LIBOR rate plus a spread of 100 bps. Both companies agree to enter into an interest rate swap agreement whereby A pays the LIBOR rate plus 50 bps. to B, and B pays 8.5% p.a. fixed to A. What is the net borrowing cost to each company?
(a) Prawn and Lobster are two companies that can borrow for a five year term at...
(a) Prawn and Lobster are two companies that can borrow for a five year term at the following rates. Prawn Lobster International credit rating A B Fixed-rate borrowing cost 6.5% 10.5% Floating-rate borrowing cost LIBOR + 1% LIBOR + 3% (i) Calculate the quality spread differential (QSD). Enter your answer as a percentage to 2 decimal places, e.g. 1.23 (1 Mark) Answer % (ii) Develop an interest-rate swap in which both Prawn and Lobster have an equal cost savings in...
Please read the article and answer these questions. Thanks. Article: TESTING THE GLOBAL CENTRAL BANK SWAP...
Please read the article and answer these questions. Thanks. Article: TESTING THE GLOBAL CENTRAL BANK SWAP NETWORK In the last few weeks, the ECB has been drawing on its liquidity swap line with the Fed, first $308 million for a week, then $658 million for a week, and last week back down to $358 million. What’s that about? It’s not such a large amount. Bank of Japan borrowed more in the past, $810 million in March and $1528 million in...
1. John invested $20,000 fifteen years ago with an insurance company that has paid him 8...
1. John invested $20,000 fifteen years ago with an insurance company that has paid him 8 percent (APR), compounded quarterly (every 3 months). How much interest did John earn over the 15 years? a. $2,416.08 b. $45,620.62 c. $24,000.00 d. $28,318.95 e. $65,620.62 2. You are running short of cash and really need to pay your tuition. A friend suggests that you check out the local title pawn shop. At the shop they offer to loan you $5,000 if you...
COST ACCOUNTING Gizmos, Inc. incorporated and will begin operations on January 1, 2021. Its primary business...
COST ACCOUNTING Gizmos, Inc. incorporated and will begin operations on January 1, 2021. Its primary business is the manufacture and sale of gadgets. Because cash resources are limited, the company anticipates the need to have access to capital during the first year of operations and seeks to establish a line of credit with a local bank. The bank requires a complete operating and cash budget and pro-forma financial statements for 2021 as part of the loan application. The following information...
QUESTION 1 All of the followings are the rights and privileges of a Common Stockholders EXCEPTING:...
QUESTION 1 All of the followings are the rights and privileges of a Common Stockholders EXCEPTING: a. Voting/Proxy Rights b. Right to Dividends c. Residual Right d. Pre-emptive Right e. Right to Interest Payments 10 points    QUESTION 2 Your best friend's parents want to buy a home in the Worcester County, but they don’t know the exact amount of money that they can afford to borrow. They can afford monthly payments of $ 1,800. A friendly bank in Worcester...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT