USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 64

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. How much compensation does the dealer receive for transaction costs, credit risk, and other costs associated with matching the FRAs?

• A) $31,250
• B) $21,350
• C) $41,000
• D) $48,150
• E) $52,000

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Definitions:

Cerebellum

A major structure of the hindbrain that is involved in motor control, coordination, precision, and accurate timing.

Brainstem

The brainstem is a crucial area at the base of the brain that connects the brain to the spinal cord and controls vital functions such as breathing, heart rate, and blood pressure.

Motor Behavior

Motor behavior encompasses all the processes involved in producing and controlling physical actions, including movement planning, coordination, and execution.

Cerebellum

A part of the brain located at the back of the skull, responsible for coordinating voluntary movements and maintaining balance and posture.