Woland National Bank purchases a three-year interest rate cap for a fee of 2 percent of notional principal valued at $50 million, with an interest rate ceiling of 11 percent and LIBOR as the index representing the market interest rate. At the same time, Woland sells a three-year floor (8 percent) for a fee of 1 percent of the $50 million principal. Assume that LIBOR is expected to be 3 percent, 12 percent, and 16 percent at the end of each of the next three years, respectively. How much Woland received (or paid) using this strategy? For example, if the net cash flow is 2.5 million dollars, type 2.5 in the box below.
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- Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,673,000, or it can make annual payments of $347,100 for 15 years, each payment due on the last day of the year. Click here to view factor tables. Which method of payment do you recommend, assuming an expected effective interest rate of 10% during the future period? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value of annual payments Recommended payment method Annual Payments 44Use the following information for the next two questions:On January 1, 20x1, ABC Co. obtained a five-year, ₱1,000,000 variable-rate loan with interest paymentsdue at each year-end and the principal due on December 31, 20x5.As protection from possible fluctuations in current market rates, ABC Co. enters into an interest rateswap for the whole principal of the loan. Under the agreement, ABC Co. shall receive variable interestand pay fixed interest based on a fixed rate of 8%. Swap payments shall be made at each year-end.The following are the current market rates: Jan. 1, 20x1 8% Jan. 1, 20x2 9% Jan. 1, 20x3 12% 62. How much is the fair value of the interest rate swap on December 31, 20x1? (Indicate whether it is aderivative asset or liability.)a. 32,397 assetb. 32,397 liabilityc. 46,884 assetd. 53,223 liability63. How much is the fair value of the interest rate swap on December 31, 20x2? (Indicate whether it is aderivative asset or liability.)a. 83,294 assetb. 83,294…On January 2, 2020, Parton Company issues a 5-year, $10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%. Parton Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Parton enters into an interest rate swap to pay 6% fixed and receive LIBOR based on $10 million. The variable rate is reset to 6.6% on January 2, 2021. Instructions a. Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2020. b. Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2021.
- 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?Birchcreek Construction has three payments left on a debt obligation in the amounts of $5,500, $10,250, and $8,000 due 1.5 years, 2 years, and 3.5 years from today. Prevailing interest rates are projected to be 8% compounded quarterly in the first year and 8.25% compounded semi-annually thereafter. If Birchcreek wants to settle the debt today, what amount should the creditor be willing to accept?An FI purchases a $9.982 million pool of commercial loans at par. The loans have an interest rate of 8 percent, a maturity of five years, and annual payments of principal and interest that will exactly amortize the loan at maturity. What is the duration of this asset? A. 2.122822 years. B. 3.072837 years. C. 3.528992 years. D. 2.846472 years. E. 5.000000 years.
- Sheridan Company receives a three-year, $9,200, zero-interest-bearing note, and the related present value with a market interest rate of 8% is $7,303.24. The total discount of $1,896.76 under the straight-line method is amortized over the three-year period in equal amounts each year. Therefore, the annual amortization is $1,896.76 ÷ 3 or $632.25. Date of issue End of Year 1 End of Year 2 End of Year 3 Cash Received Click here to view factor tables $0 0 $0 Schedule of Note Discount Amortization Effective Interest Method 0% Note Discounted at 8% Interest Income Discount Amortized $584.26 631.00 681.50 $1,896.76 $584.26. 631.00. 681.50 $1,896.76 Carrying Amount of Note $7,303.24 7,887.50 8,518.50 9,200 Prepare the entry to record the annual interest for years 1 and 2 under the straight-line method and the effective interest method. (Credit account titles are automatically indented when the amount is entered. Do not Indent manually. If no entry is required, select "No Entry" for the…A company receives a 5-year $100 million loan commitment from Wells Fargo at a fixed rate of 4.5%. The up-front commitment fee is 40 basis points and the unused portion of the loan is charged 15 basis points. The bank borrows a total of $45 million at the beginning of the year and none thereafter. The following is true, except: A The interest paid on the drawdown amount for the full year is $2,025,000. B The interest rate paid on the drawdown amount for the full year is 4.90% C The fee for the loan commitment for the full year is $400,000. D The fee for the unused portion of the loan commitment for the full year is $82,500Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $1,979,000, or it can make annual payments of $270,300 for 15 years. Click here to view factor tables. Payments must begin now and be made on the first day of each of the 15 years. What payment method would you recommend assuming an expected effective-interest rate of 11% during the future period? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Present value of annual payment Recommended payment method $ Immediate Payment ✔
- Company A agrees to enter into an FRA agreement with Company B in which Company A borrows $ 50,000,000 in 6-month time for a period of 9 months, and Company B invests $ 50,000,000 in 6-month time for a period of 9 months. The 6-month interest rate is 0.75% per annum and the 9-month interest rate is 0.90% per annum. (i).What is the interest rate that both companies agreed upon? (ii).Suppose that at the expiry date of the FRA, the 6-month interest rate is 0.81% per annum and the 9-month interest rate is 0.96% per annum, calculate the compensatory payment and which party receives it?The investment manager for Draxler Co. pays $988,472 to purchase a $1,000,000 face-value bond maturing in five years and paying interest semiannually at an annual rate of 2.75 percent. The annual market rate for comparable bonds at the time of issuance is 3.00 percent. With two years remaining, the manager determines that the bond will pay the full $1,000,000 at maturity but will pay $3,000 less in interest than planned every six months for the remainder of the bond’s life. The relevant present value factors for $1 and a $1 ordinary annuity are 0.9422 and 3.8544, respectively. If the bond’s current fair value with two years remaining is $994,800 and the amortized cost of the bond is $995,182, the current expected credit loss, assuming that the bond is classified as held-to-maturity, is closest to: A. $4,835 B. $6,710 C. $11,165 D. $11,545On January 1, 20x1, ABC Co. obtained a five-year, ₱1,000,000 variable-rate loan with interest payments due at each year-end and the principal due on December 31, 20x5. As protection from possible fluctuations in current market rates, ABC Co. enters into an interest rate swap for the whole principal of the loan. Under the agreement, ABC Co. shall receive variable interest and pay fixed interest based on a fixed rate of 8%. Swap payments shall be made at each year-end. The following are the current market rates: Jan. 1, 20x1 8% Jan. 1, 20x2 9% Jan. 1, 20x3 12% 16. How much is the fair value of the interest rate swap on December 31, 20x1? (Indicate whether it is a derivative asset or liability.) a. 32,397 asset b. 32,397 liability c. 46,884 asset d. 53,223 liability