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s344n2d4d5 [400]
3 years ago
6

A financial institution has entered into an interest rate swap with company X. Under the terms of the swap, it receives 10% per

annum and pays six-month LIBOR on a principal of $10 million for five years. Payments are made every six months. Suppose that company X defaults on the sixth payment date (end of year 3) when the interest rate (with semiannual compounding) is 8% per annum for all maturities. What is the loss to the financial institution
Business
1 answer:
sergij07 [2.7K]3 years ago
4 0

Answer:

The loss of the financial institution is $413,000

Explanation:

Let's say that after 3 years the financial institution will receive:

0.5 * 10% of $10million

= 0.5 * 0.1 * 10000000

= $500,000

Then, they will pay 0.5 * 9% of $10M

= 0.5 * 0.09 * 10000000

= $450,000

Therefore, their immediate loss would be $500000 - $450000

= $50000.

Let's assume that forward rates are realized to value the rest of the swap.

The forward rates = 8% per annum.

Therefore, the remaining cash flows are assumed that floating payment is

0.5*0.08*10000000 =

$400,000

Received net payment would be:

500,000-400,000= $100,000. The total cost of default is therefore the cost of foregoing the following cash flows:

Year 3=$50,000

Year 3.5=$100,000

Year 4 = $100,000

Year 4.5= $100,000

Year 5 = $100,000

Discounting these cash flows to year 3 at 4% per six months, the cost of default would be $413,000

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Answer:

A)The "like me" bias

B)Ethnocentrism

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D)Ethnocentrism

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Explanation:

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4 0
2 years ago
Lease Plan Effectively Manages Diversity
mylen [45]

Answer:

Lease Plan

1) The trend in gender diversity that appears to be most supported by the outcomes of Lease Plan's program changes is:

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2. Thomas's generic action options for managing diversity that is most illustrated in the case is:

include/exclude

3. Based on the information in the case, the barriers and challenges to managing diversity that were identified in the text that appear to have been present at Lease Plan were:

a. an unsupportive or hostile work environment

b. inaccurate stereotypes

Explanation:

Thomas's include and exclude generic action option emphasizes that more diverse employees should be employed in addition to minority-owned companies being used as vendors.  This option makes it possible for embracing and practicing workplace diversity.  It creates an open-minded and supportive workplace, encouraging the sharing of information and the integration of behavior to accept and value human differences, thereby overcoming stereotypes.

6 0
3 years ago
Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%. A share of stock sells fo
Tju [1.3M]

Answer: Price of stock at year end =$53

Explanation:

we first compute the Expected rate of return using the CAPM FORMULAE that

Expected return =risk-free rate + Beta ( Market return - risk free rate)

Expected return=6% + 1.2 ( 16%-6%)

Expected return= 0.06 + 1.2 (10%)

Expected return=0.06+ 0.12

Expected return=0.18

Using the formulae Po= D1 / R-g  to find the growth rate

Where Po= current price of stock at $50

D1= Dividend at $6 at end of year

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Now that we have gotten the growth rate and expected return, we can now determine the price the investors are expected to sell the stock at the end of year.

Price of stock = D( 1-g) / R-g

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3 0
3 years ago
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anygoal [31]
D I think is correct answer.
6 0
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S_A_V [24]

Answer: TRUE

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Preferred stocks are also called hybrid stock, because it has certain features of common stock and convertible securities,it has a higher priority than common stock to payment of dividend etc.

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It basic earnings and diluted earning per share will definitely not be the same for such a firm.

7 0
3 years ago
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