Value of the Swap Assignment | Homework For You
May 21st, 2020
Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown here:
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Value of the Swap Assignment | Homework For You
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Fixed-Rate | Floating-Rate | ||
Borrowing Cost | Borrowing Cost | ||
Company X | 10% | LIBOR | |
Company Y | 12% | LIBOR + 1.5% |
A swap bank proposes the following interest only swap:
Y will pay the swap bank annual payments on $10,000,000 with a fixed rate of rate of 9.90 percent.
In exchange the swap bank will pay to company Y interest payments on $10,000,000 at LIBOR − 0.15 percent;
What is the value of this swap to company Y? Get Finance homework help today