1. Interest rate swaps 1. 2. STEP: 2 of 2 Ortiz Company and Quadrics Company enter a swap arrangement where Ortiz Company gives Quadrics Company a 9 percent fixed-rate payment in exchange for Quadrics Company's floating payments at the prevailing one-year commercial paper rate plus 1 percent, based on $29 million of notional principal. Given the information from this interest rate swap, which vital provision is missing from the agreement? Check all that apply. Type of index used to determine the floating rate Payment frequency n Notional principal 0 Fixed interest rate n Swap lifetime Grade Final Step TOTAL SCORE: 1/2 (to complete this stop and unlock the next step) 3. Types of interest rate swaps Use the following table to determine which swap type best represents each swap agreement. Swap Agreement Swap Type Plain Vanilla The Bank of Atlanta has negotiated a swap where it will make fixed payments of 7% in exchange for floating payments equal to LIBOR plus 2%, based on a notional principal of $74 million, at the end of each the next three years. The Bank of Las Vegas has negotiated a swap where it will make a single payment of 4 percent, at the end of the maturity of the swap, in exchange for floating payments equal to the Treasury bill rate plus 5 percent, based on a notional principal of $86 million, at the end of each of the next 12 years. Dynacorp will have $10 million in profit this year but it expects to be taking net losses in the coming years. As a result, Dynacorp negotiates a swap where it makes an immediate large payment to receive more favorable terms on future payments. This year the firm will incur a tax loss on the swap, which will then be used to offset some of their operational profits and to reduce their tax liabilities. 1. Interest rate swaps 1. 2. STEP: 2 of 2 Ortiz Company and Quadrics Company enter a swap arrangement where Ortiz Company gives Quadrics Company a 9 percent fixed-rate payment in exchange for Quadrics Company's floating payments at the prevailing one-year commercial paper rate plus 1 percent, based on $29 million of notional principal. Given the information from this interest rate swap, which vital provision is missing from the agreement? Check all that apply. Type of index used to determine the floating rate Payment frequency n Notional principal 0 Fixed interest rate n Swap lifetime Grade Final Step TOTAL SCORE: 1/2 (to complete this stop and unlock the next step) 3. Types of interest rate swaps Use the following table to determine which swap type best represents each swap agreement. Swap Agreement Swap Type Plain Vanilla The Bank of Atlanta has negotiated a swap where it will make fixed payments of 7% in exchange for floating payments equal to LIBOR plus 2%, based on a notional principal of $74 million, at the end of each the next three years. The Bank of Las Vegas has negotiated a swap where it will make a single payment of 4 percent, at the end of the maturity of the swap, in exchange for floating payments equal to the Treasury bill rate plus 5 percent, based on a notional principal of $86 million, at the end of each of the next 12 years. Dynacorp will have $10 million in profit this year but it expects to be taking net losses in the coming years. As a result, Dynacorp negotiates a swap where it makes an immediate large payment to receive more favorable terms on future payments. This year the firm will incur a tax loss on the swap, which will then be used to offset some of their operational profits and to reduce their tax liabilities
