USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 50

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Darden Industries has decided to borrow $25,000,000.00 for six months in two three-month issues. As the Treasurer, you are concerned that interest rates will rise over the next three months and the rate upon which the second payment will be based will be undesirable. (The amount of Darden's first payment will be known at origination.) To reduce the company's interest rate exposure, you decide to purchase a 3 * 6 FRA whereby you pay the dealer's quoted fixed rate of 4.5 percent in exchange for receiving three-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys LIBOR from McIntire Industries at its bid rate of 4 percent. (Assume a notional principal of $25,000,000.00 and that there are 60 days between month 3 and month 6.)
-Refer to Exhibit 15.15. Assuming that three-month LIBOR is 5.00 percent on the rate determination day, and the contract specified settlement in advance, describe the transaction that occurs between the dealer and McIntire.

• A) The dealer is obligated to pay McIntire $61,728.40.
• B) The dealer is obligated to pay McIntire $56,389.16.
• C) McIntire is obligated to pay the dealer $56,389.16.
• D) McIntire is obligated to pay the dealer $61,728.40.
• E) McIntire is obligated to pay the dealer $66,728.40.

Understand the role of investment banks and private equity in the corporate finance ecosystem.

Differentiate between key securities acts and their provisions.

Recognize the entities and processes involved in the acquisition and ownership changes of financial exchanges.

Understand the concepts and definitions of financial instruments, including financial assets, financial liabilities, and equity instruments.

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Definitions:

Tension

A mental or emotional strain caused by the conflict between opposing forces, thoughts, or feelings.

Homeostatic Approach

A concept in psychology that refers to the process by which organisms maintain a stable internal environment despite external changes, often applied to emotional regulation.

Balance and Equilibrium

The state of psychological stability achieved when tensions or conflicts are managed and personal needs are adequately met.

American Psychoanalytic Association

A professional organization dedicated to the study and practice of psychoanalysis in the United States.