Finance and Accounting
Company A wants to borrow £25m for three years and is offered a variable rate loan commencing on 1st April 2014 at an interest rate of LIBOR + 3%, with interest re-set every six months. The company is particularly risk averse and would prefer a fixed rate loan and has a return requirement is 9% per annum.
Company B believes that interest rates are likely to remain stable over the period and is happy to pay floating rate interest in exchange for receiving fixed rate payments.
Assume that Company A and Company B arrange a derivative to be transacted on the 1st April 2014 so that Company A pays fixed interest over the period and Company B pays floating rate interest over the period. Assume that the fixed interest rate agreed for the it is LIBOR + 7% (fixed at inception), that LIBOR is 0.5% on 1st April 2014 and that on 30 June 2014 the LIBOR rate rises from 0.5% to 1%.
a) Describe the derivative trade that would enable such an exchange, the reasons why each company might want to transact such a derivative and calculate what the swap rate would be for Company A at inception. (choose a derivative)
b) How might Company B hedge its exposure to the interest rate rises and how might it fund that protection. You are required to show the impact of the strategy proposed using both a table and a graph.
c) What would the value of this derivative be on 02 September 2014 for Company A (using the Principal method)? Show how you reached your valuation using a cashflow analysis.
d) What risks are mitigated by this trade and what would you assess are the risks that this transaction represents for both Company A and Company B?
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT ?
Our Service Charter
Excellent Quality / 100% Plagiarism-FreeWe employ a number of measures to ensure top quality essays. The papers go through a system of quality control prior to delivery. We run plagiarism checks on each paper to ensure that they will be 100% plagiarism-free. So, only clean copies hit customers’ emails. We also never resell the papers completed by our writers. So, once it is checked using a plagiarism checker, the paper will be unique. Speaking of the academic writing standards, we will stick to the assignment brief given by the customer and assign the perfect writer. By saying “the perfect writer” we mean the one having an academic degree in the customer’s study field and positive feedback from other customers.
Free RevisionsWe keep the quality bar of all papers high. But in case you need some extra brilliance to the paper, here’s what to do. First of all, you can choose a top writer. It means that we will assign an expert with a degree in your subject. And secondly, you can rely on our editing services. Our editors will revise your papers, checking whether or not they comply with high standards of academic writing. In addition, editing entails adjusting content if it’s off the topic, adding more sources, refining the language style, and making sure the referencing style is followed.
Confidentiality / 100% No DisclosureWe make sure that clients’ personal data remains confidential and is not exploited for any purposes beyond those related to our services. We only ask you to provide us with the information that is required to produce the paper according to your writing needs. Please note that the payment info is protected as well. Feel free to refer to the support team for more information about our payment methods. The fact that you used our service is kept secret due to the advanced security standards. So, you can be sure that no one will find out that you got a paper from our writing service.
Money Back GuaranteeIf the writer doesn’t address all the questions on your assignment brief or the delivered paper appears to be off the topic, you can ask for a refund. Or, if it is applicable, you can opt in for free revision within 14-30 days, depending on your paper’s length. The revision or refund request should be sent within 14 days after delivery. The customer gets 100% money-back in case they haven't downloaded the paper. All approved refunds will be returned to the customer’s credit card or Bonus Balance in a form of store credit. Take a note that we will send an extra compensation if the customers goes with a store credit.
24/7 Customer SupportWe have a support team working 24/7 ready to give your issue concerning the order their immediate attention. If you have any questions about the ordering process, communication with the writer, payment options, feel free to join live chat. Be sure to get a fast response. They can also give you the exact price quote, taking into account the timing, desired academic level of the paper, and the number of pages.