Question
Mr. Kite's Manufacturing, Inc has a $500,000 loan where they pay annually LIBOR plus 4.25%. Mr Kite does not like the risk of a floating
Mr. Kite's Manufacturing, Inc has a $500,000 loan where they pay annually LIBOR plus 4.25%. Mr Kite does not like the risk of a floating rate loan. He considers entering into an interest rate swap with Henderson Bank where he pays Henderson 4.5% and Henderson pays him LIBOR. LIBOR is currently 3.50%. What is Mr Kite's total annual net payment (swap and loan combined)? Show cash flows and all work.
- A. $5,000
- B. $43,750
- C. $61,250
- D. $38,750
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International Financial Management
Authors: Jeff Madura
10th Edition
1439038333, 9781439038338
