Zee Ltd has a 3 million dollar floating rate loan which is re-set every six months. The company wants to protect itself against a rising interest rate in the next six months. It purchases a 3% 6 v/s 12 Forward Rate Agreement ( FRA ) on a notional amount of 3 million dollar. At the start date of the FRA, the market interest rate on floating rate debt is 3.5 % per annum. (i) Calculate the interest payable by Zee Ltd to the providers of finance at the end of month 12. (ii) Calculate the actual interest cost of the loan and justify your answer

Zee Ltd has a 3 million dollar floating rate loan which is re-set every six months. The company wants to protect itself against a rising interest rate in the next six months. It purchases a 3% 6 v/s 12 Forward Rate Agreement ( FRA ) on a notional amount of 3 million dollar. At the start date of the FRA, the market interest rate on floating rate debt is 3.5 % per annum. (i) Calculate the interest payable by Zee Ltd to the providers of finance at the end of month 12. (ii) Calculate the actual interest cost of the loan and justify your answer

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 16P

See similar textbooks

Similar questions

G Company enters into an IRG arrangement with M bank for a 9 months, P800,000 loan starting 3 months FROM NOW. The IRG (interest rate guarantee) rate is at 11% and the bank quotes a premium of P4,000. Compute for the effective interest rate if the actual interest rate 3 months from now is 8%
ABC Company enters into an IRG arrangement with Ch-bank for a 9 months, P800,000 loan starting 3 months from now. The IRG rate is at 11% and the bank quotes a premium of P4,000. Compute for the effective interest rate if the actual interest rate 3 months from now is 8% . Show your solution.
X has a 3 million dollar floating rate loan which is re-set every six months. The company wants to protect itself against a rising interest rate in the next six months. It purchases a 3% 6 v/s 12 Forward Rate Agreement ( FRA ) on a notional amount of 3 million dollar. At the start date of the FRA, the market interest rate on floating rate debt is 3.5 % per annum. (i) Calculate the amount receivable by X from the writer of the FRA at the beginning of the FRA period, assuming 30-day months in a year.(ii) Calculate the interest payable by X to the providers of finance at the end of month 12. (ii) Calculate the actual interest cost of the loan and justify your answer.
Garantea Company enters into an IRG arrangement with Metrobank for 9 months, P800,000 loan starting 3 months from now. The IRG rate is at 11% and the bank quotes a premium of P4,000. Compute for the effective interest rate if the actual interest rate 3 months from now is 8%
Ghana Company enters into an IRG arrangement with Meterbank for 9 months, P800,000 loan starting 3 months from now. The IRG rate is at 11% and the bank quotes a premium of P4,000. Compute for the effective interest rate if the actual interest rate 3 months from now is 8%
Royal Bank charges administration fees of 2.9% of the loan amount per annum. Target Corporation has negotiated an interest rate of 10.5% per annum on a long-term loan the company wants to take from the bank. The compensating balance (b) is 4%, and there is 11% reserve requirement (RR). What is the contractually promised rate of return to the bank from the loan? (Instructions: Please round your answer to 4 decimal places and do not show it in percent. If the answer is 2.5678%, enter 0.0257)
Suppose that Woolworth needs to borrow AUD27 million in six months for a six-month period. To lockin the rate on this loan, Woolworth buys a "6 x 6 FRA on LIBOR at 16% p.a. from ÁNZ for a notional principal of AUD27 million. 6 x 6" means that ANZ has entered into a six-month forward contract on six-month LIBOR.Assume that in six months LIBOR6 is 21% p.a. How much will Woolworth receive from AÑZ from this FRA contract? Assume that each month is 30 days. Select one a. AUD610860 b. AUD675000 c AUD625000 d. AUD1115702 e. AUD1954751
A loan of £9,400 is to be repaid over a 11-year contract by three initial payments of £3,000, £2,000 and £4,000 at the end of years 2, 5 and 9, respectively. Hence, find a final amount £X at the end of year 11 that needs to be paid to fully clear the debt given that the lender charges an annual nominal rate of interest of 7.5% convertible half-yearly. no tables, only formulas, please
19. Rublin Company applies for a one-year, P1 million loan from RY Bank. The term of the loan requires 12% per annum interest, compounded semi-monthly and will be paid together with the principal at the end of the year. How much total interest will be paid at the end of the year?
ABC Corporation will be acquiring a P3,000,000 face value loan three months from now. It entered into an IRG 3-6 to set the interest rate of the loan to 8%. It paid P20,000 for the IRG. With this contract, what is the maximum simple effective interest rate relating to loan?
Assume Credins Bank made a €10 million, 1-year discount loan at 7% interest, requiring a compensating balance equal to 10% of the face value of the loan. Determine the effective annual rate associated with this loan. (Note: Assume that the firm currently maintains €0 on deposit in Credins Bank.)
Ackerman Company enters into an IRG arrangement with Westbank for a 9 months, $800,000 loan starting 3 months from now. The IRG rate is at 11% and the bank quotes a premium of $4,000. REQUIRED: Compute for the effective interest rate if the actual interest rate 3 months from now is 8%.