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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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EA13.
almond37 [142]

Answer:

$423,000

Explanation:

Initial accounts payable added to any purchases made during the period must equal ending accounts payable plus cash payments. Therefore, the amount of budgeted cash payments is:

\$95,000 + \$420,000 = \$92,000 + budgeted\ cash\ payments\\budgeted\ cash\ payments = \$423,000

The amount of budgeted cash payments is $423,000.

3 0
3 years ago
A general contractor is managing a construction project that will add a new conference room to an existing office building. The
professor190 [17]

Answer:

A) Using a change management system to influence performance

Explanation:

First of all, since the change was proposed by the customer, any delay in the construction project caused by their new request should not trigger the damage clause.

The contractor should use a change management system so the existing baseline is not altered by the delay. A change management system is responsible for managing all the changes that might occur during the project's inception until its completion. It is important that all changes or alterations to the original schedule are properly recorded and authorized (in this case to prevent the damage clause).

By using the change management system, the organization has a standardized methodology for handling changes in the project's schedule. This way any negative impact can be reduced.

6 0
3 years ago
_____ contracts involve payment to the supplier for direct and indirect actual costs and often include fees.
mojhsa [17]

Cost-reimbursable contracts involve payment to the supplier for direct and indirect actual costs and often include fees.

A cost-reimbursable contract is an agreement between two parties called the contractor and the owner. Here the contractor gets the reimbursement for the cost incurred while carrying out the work as per the contract, and also gets an additional fixed fee from the company or an owner.

Here the final pricing of the contract is determined later based on the underlying deal and the actual costs it took to complete a project given to the contractor.

Hence, cost-reimbursable contracts involve payment for direct and indirect actual costs.

To learn more about cost-reimbursable here:

brainly.com/question/23183570

#SPJ4

7 0
1 year ago
Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat and $50 for pants. Consumers of type B wi
n200080 [17]

Answer:

The firm will not sell any bundle, the amount of bundle to be sold will be zero.

Explanation

Solution

Since firm sells at $25 each for coats and pants, then If consumer wants to purchase both Pant and Coat, the customer will have to pay 25 + 25 = $50.

Also, If consumer purchase Pant and Coat as a Bundle then, he will pay 150. From the question stated we can conclude  that  their is a form of interest to pay for Pant and Coat for Both consumers are higher than 25.

However, they will have to pay an amount less for 1 coat and 1 pant if they buy this in a separate way instead of a  Bundle.

We can say, that type of consumers (both) will not buy the pants and coat as a bundle, but will want to buy them separately.

Therefore, any bundle will not be sold by firm. the amount of Bundle sold will be known as a zero Bundle

5 0
3 years ago
The following information pertains to Crane Video Company:1. Cash balance per bank, July 31, $7,263.2. July bank service charge
My name is Ann [436]

Answer:

A. Prepare a bank reconciliation at July 31.

                                        Crane Video Company

                                             Bank Reconciliation

                                                        July 31

Cash balance per bank statement                             $7,263

Add: Deposits in transit                                                 1300

                                                                                      8,563

Less: Outstanding checks                                              591

Adjusted cash balance per bank                                $7,972

Cash balance per books                                             $7,284

Add: Collection of N/R ($700 plus

accrued interest $36 less collection

fee $20)                                                                          716

                                                                                       8,000

Less: Bank service charge                                               28

Adjusted cash balance per books                               $7,972

B. Journalize the adjusting entries at July 31 on the books of Crane Video Company.

The adjusting entry would be,

Date           Account Title                         Debit        Credit

Jul 31         Cash                                         716

                 Miscellaneous Expense           20

                 Notes Receivable                                         700

                 Interest Revenue                                            36

(to record Collection of N/R ($700 plus accrued interest $36 less collection fee $20)

31              Miscellaneous Expense            28

                 Cash                                                                28

(to record bank service charge)

5 0
3 years ago
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