A financial firm plans to borrow $75 million in the money market at a current interest rate of 4.5% per annum. However, the borrowing rate will float with market conditions. To protect itself, the firm has purchased an interest-rate cap of 5% per annum to cover this borrowing. If money market interest rates on these funds suddenly climb to 5.5% per annum as the borrowing begins, how much in total interest will the firm owe and how much of an interest rebate will it receive assuming the borrowing is only for one month?

If the Fed were to reduce course and suddenly start buying twice as much federal debt as it has in the past, pushing bond prices up, what would happen to the yields on federal debt?   a) Go up   b) Go down c) Stay the same

Many companies look to re-finance their outstanding debt when interest rates fall significantly. Javert Toy Company has $50.00 million in debt outstanding that pays an 8.75% APR coupon. The debt has an average maturity of 10.00 years. The firm can refinance at an annual rate of 5.25%. That is, investors want 5.25% today for bonds of similar risk and maturity. How much will Javert save on interest payments with this re-finance? You can assume that Javert will issue debt to cover the full price of repurchasing the old debt from part A. (answer in terms of millions, so 1,000,000 would be 1.00) Submit Answer format: Currency: Round to: 4 decimal places.

Chapter 12, Problem 3   IBM needs to raise $I billion and is trying to decide between a domestic dollar bond issue and a Eurobond issue. The U.S. bond can be issued at a coupon of 6.75 percent, paid semiannually, with underwriting and other expenses totaling 0.95 percent of the issue size. The Eurobond would cost only 0.55 percent to issue but would bear an annual coupon of 6.88 percent. Both issues would mature in 10 years.   a. Assuming all else is equal, which is the least expensive issue for IBM?   B. What other factors might IBM want to consider before deciding which bond to issue?