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4. An insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. These loans are financed with $50 million of fixed-rate guaranteed
| 4. An insurance company owns $50 million of floating-rate bonds yielding LIBOR plus 1 percent. | ||||||||||
| These loans are financed with $50 million of fixed-rate guaranteed investment contracts (GICs) costing 10 percent. | ||||||||||
| A bank has $50 million of auto loans with a fixed rate of 14 percent. | ||||||||||
| The loans are financed with $50 million in CDs at a varibale rate of LIBOR plus 4 percent. | ||||||||||
| c. What would be the cash flows goals of each company if they were to enter into a swap arrangement?
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| e. Diagram the direction of the relevant cash flows for the swap arranagement. |
| f. What are the reasonable cash flows amounts, or relative interest rates, for each of the payment streams? |
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Financial Management
Authors: Rajiv Srivastava, Anil Misra
2nd Edition
0198072074, 9780198072072
