Question
The QM entity can borrow 15% at fixed interest. LIBOR + 1.75 can be borrowed with variable interest. The CY entity can borrow 12% with
The QM entity can borrow 15% at fixed interest. LIBOR + 1.75 can be borrowed with variable interest.
The CY entity can borrow 12% with fixed interest rate and LIBOR + 0.5 with variable interest rate.
The QM entity signed an agreement with a bank to borrow fixed interest. The bank will pay LIBOR to the QM business, and the QM business will pay the bank 12.25% interest.
The CY company will pay LIBOR to the intermediary bank, and 12% to the CY enterprise at the bank.
a. Find the total borrowing costs of the QM and CY business after the swap .
b. Calculate the total earnings earned by the A and B entity due to swaps .
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Corporate Finance Principles And Practice
Authors: Denzil Watson, Antony Head
9th Edition
1292450940, 978-1292450940
