Find the All-In-Cost of a Swap to a Party That

question 15

Multiple Choice

Find the all-in-cost of a swap to a party that has agreed to borrow $5 million at 5 percent externally and pays LIBOR + ½ percent on a notational principal of $5 million in exchange for fixed rate payments of 6 percent.

• A)LIBOR + ½ percent
• B)LIBOR
• C)LIBOR − ½ percent
• D)none of the options

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Definitions:

Dependent Variable

A variable in an experiment or model that is expected to change in response to changes in independent variables.

Perfect Correlation

Perfect correlation occurs when two variables move in unison, either directly (perfect positive correlation) or inversely (perfect negative correlation), with a correlation coefficient of +1 or -1, respectively.

Perfect Prediction

A situation where a model or analysis predicts the outcome with 100% accuracy, with no errors.

Regression Equation

An equation that describes the line of best fit through a dataset, used to predict the outcome variable.