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Companies WMM and KLL have been offered the following rates per annum on a $50 million 5-year investment, shown in Exhibit 3. KLL requires a
Companies WMM and KLL have been offered the following rates per annum on a $50 million 5-year investment, shown in Exhibit 3. KLL requires a fixed-rate investment while WMM wishes to invest at a floating rate of interest. Exhibit 3: Interest rates Task 3.1: ' This task requires you to design a vanilla swap that allocates 65% advantage (i.e. gain) to WMM and 35\% advantage (i.e. gain) to KLL. Assume that a financial institution, acting as an intermediary, is planning to charge a 0.3% premium. Task 3.2: Assume that today is 15th June 2021, the two companies enter the \$50 million 5-year swap you have designed in Task 3.1. The payments of the swap are made semi-annually, on 15 th December and June each year. Note that LIBOR is determined on the previous settlement date. The accrual period is the actual number of days divided by 360 . Your task is to complete the Template (Exhibit 4) below, which demonstrates the cash flows on the swap from the perspective of WMM. Exhibit 4: Template of CFs on the swap Companies WMM and KLL have been offered the following rates per annum on a $50 million 5-year investment, shown in Exhibit 3. KLL requires a fixed-rate investment while WMM wishes to invest at a floating rate of interest. Exhibit 3: Interest rates Task 3.1: ' This task requires you to design a vanilla swap that allocates 65% advantage (i.e. gain) to WMM and 35\% advantage (i.e. gain) to KLL. Assume that a financial institution, acting as an intermediary, is planning to charge a 0.3% premium. Task 3.2: Assume that today is 15th June 2021, the two companies enter the \$50 million 5-year swap you have designed in Task 3.1. The payments of the swap are made semi-annually, on 15 th December and June each year. Note that LIBOR is determined on the previous settlement date. The accrual period is the actual number of days divided by 360 . Your task is to complete the Template (Exhibit 4) below, which demonstrates the cash flows on the swap from the perspective of WMM. Exhibit 4: Template of CFs on the swap
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