Find net payment of the company, Corporate Finance

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a)    Black Corp. currently has $65 million worth of floating rate debts carried at an average rate of LIBOR + 2.6% that it would like to hedge against rising interest rates without having to issue fixed rate bonds.  Accordingly, they have approached Red Corp. (a swap dealer) about an 8-year interest rate swap with a notional value of $65 million.  If Black can borrow in the fixed rate market at 5.15% and the swap rate is currently 2.35%, how much money will it be able to save from this arrangement each year (compared to simply issuing fixed rate bonds)?

b)    What net payment is made to Black for a six month period in which LIBOR is 2.6%?

c)    Briefly explain why banks do not require margin when they sell forward contracts

d)   Briefly explain how Sojitz Corp. is attempting to naturally hedge its exposure to supply disruptions of rare earth elements (REEs)

 

 


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