Compute the Payments Due in the First Year on a Three-Year

question 79

Multiple Choice

Compute the payments due in the first year on a three-year amortizing swap from company B to company A.Company A and company B both want to borrow £1,000,000 for three years.A wants to borrow floating and B wants to borrow fixed.A and B agree to split the QSD.

$$\begin{array} { c c c } & \text { Fixed-Rate Borrowirg } & \text {Floatirig-Rate Bort owirig } \\& \text { Cost } & \text { Cost } \\\text { Compary A } &10 \% & LIBOR\\\text { Compary B }& 12 \% & LIBOR+1.5 \%\end{array}$$

• A)B pays £402,114.80 to A
• B)B pays £100,000 to A
• C)B pays £69,788.52 to A
• D)none of the options

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Definitions:

Appreciate the Dollar

The increase in value of the US dollar relative to other currencies, leading to increased purchasing power internationally.

Demand for Pesos

The desire or willingness of market participants to acquire Mexican pesos, influenced by factors like investment returns and currency stability.

Supply of Pesos

The total amount of Mexican Pesos available in the financial markets, influenced by factors such as monetary policy and economic conditions.