What is the loss to the financial institution

Assignment Help Financial Management

Reference no: EM131235989

A financial institution has entered into an interest rate swap with company X. Under the terms of the swap, it receives 10% per annum and pays 6-month LIBOR on a principal of $10 million for 5 years. Payments are made every 6 months.

Suppose that company X defaults on the sixth payment date (at the end of year 3) when the interest rate (with semiannual compounding) is 8% per annum for all maturities. What is the loss to the financial institution? Assume that 6-month LIBOR was 9% per annum halfway through year 3.

Reference no: EM131235989

Questions Cloud

Discuss how cloud-management considerations may vary across : For many IT professionals, managing device virtualization and cloud deployment is a daunting task. Discuss how cloud-management considerations may vary across the life cycle of a cloud-based solution.

Perform in-depth research and provide an explanation : You will perform in-depth research and provide an explanation of how an issue associated with your selected topic relates to the consumption of digital media.

Write a program a to program to compute the area : Write a program a to program to compute the area A of a triangle with base b and height h. Write a program to a program to compute the volume V of a sphere of radius r.

Chartered financial anaylst : The Chartered Financial Anaylst (CFA) institute reported that 51% of its U.S. members indicate that lack of ethical culture within financial firms has contributed the most to the lack of trust in the financial industry. (Source: cfa.is/YqVCKB) S..

What is the loss to the financial institution : Suppose that company X defaults on the sixth payment date when the interest rate is 8% per annum for all maturities. -What is the loss to the financial institution?

Propose an alternate redesign that improves security : Propose a redesign of your software architecture for the system of automated banking machines from the previous exercise so that it improves performance. Propose an alternate redesign that improves security. Does your strategy to improve performan..

What is the probability that none of the adults : According to a 2013 study by the Pew Research Center, 15% of adults in the United States do not use the Internet (Pew Research Centerwebsite, December, 15, 2014). Suppose that 10 adults in the United States are selected randomly. 1. What is the proba..

Calculate excess demand for each price : In Smalltown, Pennsylvania the demand function for men’s haircuts is given by Qd = 500 – 30p + 0.08Y, where Qd is quantity demanded per month, p the price of a haircut and Y the average monthly income in the town. If Y = $5,000 and w = $10, use Excel..

What rates of interest will a and b end up paying : A financial institution is planning to arrange a swap and requires a 50-basis-point spread. If the swap is to appear equally attractive to A and B, what rates of interest will A and B end up paying?

User Account

All Pages