Company X Wants to Borrow $10,000,000 Floating for 5 Years;A Swap Bank Proposes the Following Interest Only Swap: X

The Answer of Company X Wants to Borrow $10,000,000 Floating for 5 Years;A Swap Bank Proposes the Following Interest Only Swap: X

Company X Wants to Borrow $10,000,000 Floating for 5 Years;A Swap Bank Proposes the Following Interest Only Swap: X

The Answer of Company X Wants to Borrow $10,000,000 Floating for 5 Years;A Swap Bank Proposes the Following Interest Only Swap: X

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Company X Wants to Borrow $10,000,000 Floating for 5 Years;

question 18

Multiple Choice

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: $\begin{array} { c c c } & \text { Fixed-Rate } & \text { Floating-Rate } \\&\text { Borrowing Cost } & \text { Bortowing Cost } \\\text { Compary X } & 10 \% & \text { LIBOR } \\\text { Compary Y } & 12 \% & \text { LIBOR } + 1.5 \%\end{array}$ A swap bank proposes the following interest only swap:
X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 10.05 percent.Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR ? 0.15 percent. $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: \begin{array} { c c c } & \text { Fixed-Rate } & \text { Floating-Rate } \\ &\text { Borrowing Cost } & \text { Bortowing Cost } \\ \text { Compary X } & 10 \% & \text { LIBOR } \\ \text { Compary Y } & 12 \% & \text { LIBOR } + 1.5 \% \end{array} A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 10.05 percent.Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR ? 0.15 percent. What is the value of this swap to the swap bank? A) The swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year. B) The swap bank will earn 10 basis points per year on $10,000,000 = $10,000 per year. C) The swap bank will lose money. D) none of the options$ What is the value of this swap to the swap bank?

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