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best possible answer? A corporate treasurer believes interest rates are going to rise and decides to swap future floating rate payments for fixed rate payments.
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A corporate treasurer believes interest rates are going to rise and decides to swap future floating rate payments for fixed rate payments. The firm s paying LIBOR+2% on $5 million in debt for the next two years with payments due semi-annually LIBOR is 4%. The next payment is due in six months. Swapping involves exchangin fixed payments of 5%. The firm's cost of capital is 12% per annum with semi-annual compounding. If LIBOR rises by 50 basis points per six-month month, starting tomorrow, what is the present value of anticipated swap cash flows? g | IBOR for O-$25,000 (cost savings) -$24,808.64 (cost savings) +$24,808.64 (added cost) +$25,000 (added cost)Step by Step Solution
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