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= Q3. Suppose that BRW corporation is borrowing F $200M at a floating rate equaling (6 months) LIBOR plus a spread s = 3.20% for
= Q3. Suppose that BRW corporation is borrowing F $200M at a floating rate equaling (6 months) LIBOR plus a spread s = 3.20% for T = 5 years. (Interest payments are made semi-annually.) To better manage its cashflows, BRW simultaneously enters a 5-year swap as fixed payer on Ni = $120M; the swap rate is c = 0.0240. Finally, BRW purchases an interest cap with strike rate K = 0.0350 on a notional N2 = $80M. a) At date t1 = 2y, LIBOR is reported as r(2, 2.5) = 0.0285. What is the net payment made by BRW on the loan and derivative positions at date 2.5y? b) At date t1 = 4y, LIBOR is reported as r(2, 2.5) = 0.0120. What is the net payment made by BRW on the loan and derivative positions at date 4.5y? c) On the same axes, draw (i) a payoff diagram of the interest paid by BRW on its loan at payment date t given the LIBOR rate 6 months earlier, r(t0.5,t), and (ii) a payoff diagram showing the net payment interest plus derivative payoffs) made by BRW at the same payment date. = Q3. Suppose that BRW corporation is borrowing F $200M at a floating rate equaling (6 months) LIBOR plus a spread s = 3.20% for T = 5 years. (Interest payments are made semi-annually.) To better manage its cashflows, BRW simultaneously enters a 5-year swap as fixed payer on Ni = $120M; the swap rate is c = 0.0240. Finally, BRW purchases an interest cap with strike rate K = 0.0350 on a notional N2 = $80M. a) At date t1 = 2y, LIBOR is reported as r(2, 2.5) = 0.0285. What is the net payment made by BRW on the loan and derivative positions at date 2.5y? b) At date t1 = 4y, LIBOR is reported as r(2, 2.5) = 0.0120. What is the net payment made by BRW on the loan and derivative positions at date 4.5y? c) On the same axes, draw (i) a payoff diagram of the interest paid by BRW on its loan at payment date t given the LIBOR rate 6 months earlier, r(t0.5,t), and (ii) a payoff diagram showing the net payment interest plus derivative payoffs) made by BRW at the same payment date
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