4. Swaps: A, Inc. and B, Inc, will have to bear the following interest rates in the fixed-rate debt market and floating rate debt market on a 7-year debt: Fixed rate debt cost 7-yr. T-note yield+ 85 basis points LIBOR 30 basis points 7-yr. T-note yield+ 25 basis points LIBOR Floating rate debt cost A: B: A considers issuing fixed-rate debt because its cash inflows are stable. B considers issuing floating rate debt because its cash inflows are sensitive to interest rates. However, you feel in the opposite way. On your advice A issues floating rate note and B issues fixed-rate debt. Then on your advice they enter into a swap agreement on the following terms: Notional principal: $20 mil Fixed-rate payer: A Swap fixed-rate: T-note yield + 0.40% Fixed-rate receiver: B Floating rate: 6-month LIBOR Find the net synthetic funding cost for each company
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
