Your firm is currently in an interest rate swap, paying 3.00% fixed, receiving LIBOR+0.25%. The payments are semi- annual. The nominal value is $500M. Below is the relevant term structure of LIBOR rates. The LIBOR rate 3 months ago was 0.0600. (a) Complete the following table by filling in the zero - coupon price of a $1 bond. (b) What is the value of the fixed leg, based on a nominal value of $500,000,000? (c) What is the value of the variable leg, based on a nominal value of $500,000,000? d) What is the value of the swap, based on a nominal value of $500,000,000 LIBOR Rate Zero - coupon Price L(90) 0.0585 L(270) 0.0555 L(450) 0.0565 L(630) 0.0565

Your firm is currently in an interest rate swap, paying 3.00% fixed, receiving LIBOR+0.25%. The payments are semi- annual. The nominal value is $500M. Below is the relevant term structure of LIBOR rates. The LIBOR rate 3 months ago was 0.0600. (a) Complete the following table by filling in the zero - coupon price of a $1 bond. (b) What is the value of the fixed leg, based on a nominal value of $500,000,000? (c) What is the value of the variable leg, based on a nominal value of $500,000,000? d) What is the value of the swap, based on a nominal value of $500,000,000 LIBOR Rate Zero - coupon Price L(90) 0.0585 L(270) 0.0555 L(450) 0.0565 L(630) 0.0565

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 10MC: Suppose there is a large probability that L will default on its debt. For the purpose of this...

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Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.
Your firm is currently in an interest rate swap, paying 3.00% fixed, receiving LIBOR+0.25%. The payments are semi-annual. The nominal value is $500M. Below is the relevant term structure of LIBOR rates. The LIBOR rate 3 months ago was 0.0600. (a) Complete the following table by filling in the zero-coupon price of a $1 bond. (Enter your answer with 4 decimals, such as 0.9987.) LIBOR Rate Zero-coupon Price L(90) 0.0585 L(270) 0.0555 L(450) 0.0565 L(630) 0.0565 b) What is the value of the fixed leg, based on a nominal value of $500,000,000? c) What is the value of the variable leg, based on a nominal value of $500,000,000? d) What is the value of the swap, based on a nominal value of $500,000,000?
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