On January 1,2014,Panther Company Received a Two-Year $600,000 Loan

question 5

Multiple Choice

On January 1,2014,Panther Company received a two-year $600,000 loan.The loan calls for payments to made at the end of each year based on the prevailing market rate at January 1 of each year.The interest rate at January 1,2014,was 10 percent.Aegean company also has a two-year $600,000 loan,but Aegean's loan carries a fixed interest rate of 10 percent.
-Panther Company does not want to bear the risk that interest rates may increase in year two of the loan.Aegean Company believes that rates may decrease and they would prefer to have variable debt.So the two companies enter into an interest rate swap agreement whereby Aegean agrees to make Panther's interest payment in 2015 and Panther likewise agrees to make Aegean's interest payment in 2015.The two companies agree to make settlement payments,for the difference only,on December 31,2015.If the interest rate on January 1,2015,is 12 percent,what will be Panther's settlement payment to/from Aegean?

• A) $6,000 payment
• B) $6,000 receipt
• C) $12,000 payment
• D) $12,000 receipt

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Definitions:

Cash Dividends

Cash distributions from a company to its shareholders, usually derived from earnings.

Treasury Stock

Treasury stock consists of shares that were issued and later reacquired by the issuing company, reducing the amount of outstanding stock on the open market.

Dividend Yield

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price, providing insight into the income generated from an investment.

Cash Dividends

Payments made by a corporation to its shareholders, typically from profits, in the form of cash.