Answered step by step
Verified Expert Solution
Question
1 Approved Answer
1. The following graphic is from the RBA Chart Pack. Refer to it in answering the questions that follow. Source: www.rba.gov.au/statistics/tables/index.html#interest rates Accessed 3rd
1. The following graphic is from the RBA Chart Pack. Refer to it in answering the questions that follow. Source: www.rba.gov.au/statistics/tables/index.html#interest rates Accessed 3rd October, 2012 (a) Clearly explain the differences between fixed rate borrowing and variable rate borrowing. If you were CEO of a small business, would you look to borrow fixed rate or floating rate; or a mix of the two? Why do you think that following the GFC the amount of floating rate borrowing increased? Would you regard 90 day bank bills as a fixed rate or a variable rate borrowing? (b) You organise a floating rate borrowing for your business from your bank with the following details: Through the issue of $6m face value of 90 day bank bills With the bank charging your company a margin of 0.80% above the bank bill rate. Starting in October 2011 and ending in October 2013 as per the interest rates that follow. Identify the different interest rates that you would be charged over the life of the loan. What would be the overall cost p.a. of that borrowing? Note that you did a similar calculation in the Week 9 tutorial. (ANSWER: The first Bank Bill (October-2011) sells for $5,919,287. The overall cost (ie. IRR) of the 8 Bank Bills is 1.0958% p.q. or 4.4557% p.a.) Period Date Bank Bill Yield Oct-11 4.73 1 Nov-11 4.62 2 Dec-11 451 3 Jan-12 4.41 4 Feb-12 4.37 5 Mar-12 4.44 6 Apr-12 4.20 7 May-12 3.66 8 Jun-12 3.49 9 J-12 3.55 10 Aug-12 362 11 Sep-12 3.49 12 Oct-12 323 13 Nov-12 3.13 14 Dec-12 3.11 15 Jan-13 3.04 16 Feb-13 2.95 17 Mar-13 296 18 Apr-13 3.06 19 May-13 201 20 Jun-13 278 21 Jul-13 281 22 Aug-13 262 23 Sep-13 24 Oct-13 256 258
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started