Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 25, Problem 10CQ
Summary Introduction
To explain: The cash flow that will occur as a result of the swap.
Interest Rate Swap:
Swapping the interest rate helps the companies by allowing them to exchange their interest payments at the decided amount for a mutually agreed period of time. It is done to hedge towards adverse interest rate movements and to get a balance between fixed and variable debt.
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In an interest swap contract, the exchange of cash flow calculated in each period is based upon the:
a.
notional principal.
b.
present value of notional principal.
c.
swap principal.
d.
face value of interest-bearing bond.
Interest-rate swaps are:
Answer
a. Exchanges of equity securities for debt securities
b. Agreements involving swapping of options contracts
c. Agreements that allow both parties to convert floating interest rates to fixed interest rates.
d. Agreements between two parties to exchange periodic interest-rate payments over some future period
In an interest rate swap borrower pays
O a. Premium
O b. Coupon cashflows
O c. Repayment cashflows
Od. Discount to cashflows
Chapter 25 Solutions
Corporate Finance
Ch. 25 - Prob. 1CQCh. 25 - Prob. 2CQCh. 25 - Prob. 3CQCh. 25 - Prob. 4CQCh. 25 - Prob. 5CQCh. 25 - Prob. 6CQCh. 25 - Option Explain why a put option on a bond is...Ch. 25 - Hedging Interest Rates A company has a large bond...Ch. 25 - Prob. 9CQCh. 25 - Prob. 10CQ
Ch. 25 - Prob. 11CQCh. 25 - Prob. 12CQCh. 25 - Prob. 13CQCh. 25 - Prob. 14CQCh. 25 - Hedging Strategies William Santiago is interested...Ch. 25 - Prob. 16CQCh. 25 - What is the monthly mortgage payment on Jerrys...Ch. 25 - Prob. 2MCCh. 25 - Prob. 3MCCh. 25 - Prob. 4MCCh. 25 - Suppose that in the next three months the market...Ch. 25 - Are there any possible risks Jennifer faces in...
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- Describe a credit default swap and its purpose. Note the rationale for the protection buyer and the protection seller and the cash flow between the two parties. Describe four key credit events that would trigger payment under a credit default swap.arrow_forwardOne company agrees to pay to another company cash flows equal to interest at a predetermined fixed rate on a notional principal for a predetermined number of year in exchange of payments interest payments at a floating rate on the same notional principal for the same period of time. This is true for the following type of swap a. Total return swap b. Debt-equity swap c. Currency swap d. Interest rate swaparrow_forwardFINANCIAL RISK MANAGEMENT Briefly explain what is Interest Rate Swap and who are the parties in an Interest Rate Swap?arrow_forward
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