Question
We consider a 6-month Libor incremental fixed swap with $100,000,000 nominal amount where the fixed portion is determined as follows: The fixed leg is paid
We consider a 6-month Libor incremental fixed swap with $100,000,000 nominal amount where the fixed portion is determined as follows:
The fixed leg is paid annually as the floating leg is received semiannually. The incremental fixed swap rate is equal to 7.2% as the plain-vanilla swap rate is 6.8%. 1. What is the value of the fixed leg if the 6-month Libor is equal to 6.5%? 2. Calculate the financing cost for a firm with a 6-month Libor debt in three different situations: when it does nothing, when it contracts a standard swap and when it contracts an incremental fixed swap.
3. We suppose that the firm contracts an incremental fixed swap. What is its financing cost when the 6-month Libor is, respectively, 8%, 6.8%, 5.7%, 4.8% and 3.5%?
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Incremental Fixed Swap Analysis Heres a breakdown of the information and calculations for the incremental fixed swap 1 Fixed Leg Value Given Nominal A...Get Instant Access to Expert-Tailored Solutions
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