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Problem 8-6 (algorithmic) Question Help O'Reilly and CD Solutions. Heather O'Reilly, the treasurer of CB Solutions, believes interest rates are going to rise, so she
Problem 8-6 (algorithmic) Question Help O'Reilly and CD Solutions. Heather O'Reilly, the treasurer of CB Solutions, believes interest rates are going to rise, so she wants to swap her future floating-rate interest payments for fixed rates. Presently, she is paying LIBOR +2.00% per annum on $5,100,000 of debt for the next two years, with payments due semiannually LIBOR is currently 3.97% per annum. Heather has just made an interest payment today, so the next payment is due six months from now. Heather finds that she can swap her current floating-rate payments for fixed payments of 7.004% per annum. (CB Solutions' weighted average cost of capital is 12%, which Heather calculates to be 8% per 6-month period, compounded semiannually). a. I LIBOR rises at the rate of 50 basis points per 6-month period, starting tomorrow, how much does Heather save or cost her company by making this swap? b. IT LIBOR falis at the rate of 25 basis points per 6-month period, starting tomorrow, how much does Heather save or cost her company by making this swap? a. #LIBOR rises at the rate of 50 basis points per 6-month period, starting tomorrow, how much does Heather save or cost her company by making this swap
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