Axil CorpHas Not Tapped the Deutsche Mark Public Debt Market Because

question 4

Multiple Choice

Axil Corp.has not tapped the Deutsche mark public debt market because of concern about a likely appreciation of that currency and only wishes to be a floating-rate dollar borrower,which it can be at LIBOR + 1%.Bevel Corp.strongly prefers fixed-rate DM debt,but it must pay 1.5% more than the 6 1/4% coupon that Axil's DM notes would carry.Bevel,however,can obtain Eurodollars at LIBOR + ½%.
-What is the maximum possible cost savings to Bevel from engaging in a currency swap with Axil?

• A)1%
• B)75%
• C)2%
• D)1.25%

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Definitions:

Serial Bonds

Bonds issued by an entity that are scheduled for repayment in a series of periodic payments over time.

Premium Amortized

The gradual reduction of the additional cost (premium) paid above the par value of a bond or other financial instrument over its life.

Bond Interest

The periodic payment a bond issuer makes to bondholders for the use of borrowed funds, typically expressed as a fixed percentage of the principal.

Journal Entry

Journal Entry is a record in accounting that logs the debit and credit of a transaction in the general ledger, documenting financial transactions systematically.