What is the range of possible cost savings

Assignment Help Financial Management
Reference no: EM131179668

Suppose IBM would like to borrow fixed-rate yen, whereas Korea Development Bank (KDB) would like to borrow floating-rate dollars. IBM can borrow fixed-rate yen at 4.75% or floating-rate dollars at LIBOR + 0.35%. KDB can borrow fixed-rate yen at 4.90% or floating-rate dollars at LIBOR + 0.75%.

(a) What is the range of possible cost savings that IBM can realize through an interest rate/currency swap with KDB?

(b) Assuming a notional principal equivalent to $125 million and a current exchange rate of 105/$, what do these possible cost savings translate into in yen terms?

(c) Redo parts a and b assuming the parties use Bank of America, which charges 8 basis points to arrange the swap.

Reference no: EM131179668

Questions Cloud

What will the firms unlevered beta be after refinancing : The firm’s unlevered (asset) beta is 0.77. Book and market values are equal. The firm has $40 million of debt, 5% interest rate, and $60 million of equity outstanding. The market risk premium is 4%.The firm is considering refinancing by selling bonds..
How would international worldwide structure the hedge : International Worldwide would like to execute a money market hedge to cover a ¥ 250,000,000 shipment from Japan of sound systems it will receive in six months. The current exchange rate is ¥124 = $1. How would International Worldwide structure the he..
Retirement increases the benefits of compound interest : Starting to invest late for retirement increases the benefits of compound interest. If the returns of two firms are negatively correlated, then one of them must have a negative beta. If inflation is expected to be relatively high, then interest rates..
What is the market price per share of stock : Say you decide to start a firm and you need $500 million of capital to begin. You sell stock for its par value, a total of one million shares (par value is $200 per share), and sell $300 million of bonds at par value. Assume that the market expects t..
What is the range of possible cost savings : Suppose IBM would like to borrow fixed-rate yen, whereas Korea Development Bank (KDB) would like to borrow floating-rate dollars. IBM can borrow fixed-rate yen at 4.75% or floating-rate dollars at LIBOR + 0.35%. What is the range of possible cost sav..
How much will be in your retirement account : You can afford to deposit $250 each month into your retirement account. For the first 15 years, your employer will match your deposits, but you plan to retire in 40 years. If your account is guaranteed to earn5.7%, compounded monthly, then ... how mu..
Bond spread over comparable maturity treasury bonds : A Corporate bond matures in five years. It has a par value of $1000 and pays a 7% annual coupon. This bond’s spread over comparable maturity Treasury Bonds is 150 basis points. Treasury bond yields are currently 2%, 4% and 6% for 2 year, 5 year and 1..
Calculate net euro gain or loss on its futures position : On January 10, Volkswagen agrees to import auto parts worth $8 million from the U.S. The parts will be delivered on March 4 and are payable immediately in dollars. Calculate the number of futures contracts that VW must buy to offset its dollar exchan..
What is the stock expected rate of return : Green Company's common stock is currently selling at $40.25 per share. The company expects to pay dividends of $2.30 per share next year (D1) and projects dividend growth at a rate of 7%. At this rate, what is the stock's expected rate of return?

Reviews

Write a Review

Financial Management Questions & Answers

  Evaluate the value of leased assets

Estimate the value of leased assets. If you misestimate the average life to be 10 years, how large will the valuation error be?

  Value of one share to investor who requires rate of return

Mc Donalds corp. preferred stock pays an annual dividend of $5 per share. Calculate the value of one share to an investor who requires a rate of return of : Calculate the yield of the Mc Donalds corp preferred stock of problem 13 if its market price ..

  What is the value of this project in todays dollars

You have found a project that will produce an annual income of $125,000 at the end of first year. This annual income will increase by 5 percent annually for 7 years. What is the value of this project in today's dollars if you can earn 12% on your inv..

  What is the maturity risk premium

Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly's bonds is DRP = 0.40%, the liquidity premium on Kelly's bonds is LP = 2.6% versus zero on T-bonds, and the ..

  What is the firms degree of leverage

Consider the following project which costs $2,000 with a salvage value of zero in 4 years. The project will produce a new widget which will be sold for $135 and have variable costs of $95 per unit. The company has fixed costs of $3,000 and a required..

  What actions would the fed take if inflation is too high

What action(s) would the Fed take if inflation is too high? What would it do if the unemployment rate is too high? What would it do if both inflation and unemployment rates are too high?

  What are the key activity areas for securities firms

What are the key activity areas for securities firms? How does each activity area assist in the generation of profits and what are the major risks for each area?

  Based on purchasing power parity

The U. S. experienced an inflation rate of 4 percent last year while Spain's inflation last year was 2 percent. Based on purchasing power parity, the euro will:

  What is the amount of the collection float

A firm had a ledger balance of $4,122 with no outstanding deposits or checks. Today, your firm deposited 4 checks in the amount of $466 each and wrote a check in the amount of $969. What is the amount of the collection float as of the end of the day?

  Net annual savings be if the service were adopted

Your firm has an average receipt size of $120. A bank has approached you concerning a lockbox service that will decrease your total collection time by two days. You typically receive 7,400 checks per day. The daily interest rate is .017 percent. What..

  What would be the percentage change in the bonds price

Price A bond with a $1,000 par value pays a coupon of $40 every six months. The bond has 12 years until maturity and a required return of 8%. Calculate the bond’s price. If the required return suddenly dropped to 6%, what would be the percentage chan..

  What would the annual yield to maturity be on the bonds

A few years ago Spider web inc issued with a 11.79 percent annual coupon rate paid semiannually. The bonds have a par value of $1,000 a current price of $702 and will mature in 23 years. What would the annual yield to maturity be on the bonds if you ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd