Borrow canadian dollars at fixed rate of interest

Assignment Help Financial Management

Reference no: EM131354090

Companies A and B face the following interest rates: A Company B

US Dollars (floating rate) LIBOR+0.5% LIBOR+1.0%

Canadian dollars (fixed rate) 5.2% 7.01%

Assume that A wants to borrow U.S. dollars at a floating rate of interest and B wants to borrow Canadian dollars at a fixed rate of interest. A financial institution is planning to arrange a swap and requires a 50-basis-point spread. If the swap is equally attractive to A and B, what rates of interest would B end up paying?

Reference no: EM131354090

Questions Cloud

Yield to maturity-compute the price of bond : The Florida Investment Fund buys 90 bonds of the Gator Corporation through a broker. The bonds pay 8 percent annual interest. The yield to maturity (market rate of interest) is 10 percent. The bonds have a 10-year maturity. Compute the price of a bon..

How much dividend income will you receive per year : Winslow, Inc. stock is currently selling for $40 a share. The stock has a dividend yield of 3.8 percent. How much dividend income will you receive per year if you purchase 500 shares of this stock?

What is cost of equity from retained earnings : Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM = 5%; and βs = 1.30. Based on the CAPM approach, what is the cost of equity from retained earnings..

What will be the value of call provision to the company : Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 9.5 percent, payable annually. The one-year interest rate is 9.5 percent. Next year, there is a 35 percent probability that interest rates will increase ..

Borrow canadian dollars at fixed rate of interest : Assume that A wants to borrow U.S. dollars at a floating rate of interest and B wants to borrow Canadian dollars at a fixed rate of interest. A financial institution is planning to arrange a swap and requires a 50-basis-point spread. If the swap is e..

What is the cost of issuing preferred stock : Hybrid Hydro Plants, Inc., which has a marginal tax rate equal to 40 percent, has preferred stock that pays a constant dividend equal to $15 per share. The stock currently sells for $120. If the company incurs a 5 percent flotation cost each time it ..

Coupon rate should bonds have in order to sell at par value : Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,195. One-year interest rates are 13 percent. There is a 60 percent probability that long-term interest rates one year from toda..

Net profitability index of the project if cost of capital : Consider a project with the following cash flows -100, 230 and -134 at time 0, 1 and 2, respectively. Obtain the NPI (Net Profitability Index) of the project if the cost of capital is 10%.

Calculate the Net Present Value-NPVA and NPVB : Scanlon Inc. is considering Projects A and B, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forg..

User Account

All Pages