Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Parmar Corporation wants to borrow $1,000,000, 3 year floating: SmileStop Corporation wants to borrow $1,000,000, 3 year fixed. Their borrowing choices are shown here: Fixed
Parmar Corporation wants to borrow $1,000,000, 3 year floating: SmileStop Corporation wants to borrow $1,000,000, 3 year fixed. Their borrowing choices are shown here: Fixed Rate Cost Floating Rate Cost Parmar Corp 5% Libor SmileStop Corp 7% Libor + 1.5% A swap bank proposes the following interest only swap: Parmar will pay the swap bank annual payments on $1,000,000 with the coupon rate of LIBOR -0.15 percent; in exchange the swap bank will pay to Parmar interest payments on $1,000,000 at a fixed rate of 4.90 percent. What is the value of this swap to Parmar? Parmar will lose money on the deal. O a. Parmar will break even on the deal. b. O C. Parmar will save 25 basis points per year on 51,000,000 = 52,500 per year. Parmar will save 5 basis points per year on $1,000,000 = $500 per year O d
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