The following information is given. ABC Inc.and XYZ Inc.have agreed to swap their debt payments so that each firm gets its preferred debt terms.They can arrange an interest rate swap through Big Bank.Big bank charges 0.15% for its services.The remaining savings from the interest rate swap are equally shared by A and B.
QSD:
1% .25% = .75%; after bank fees:
.75% .15% = .60% savings available
a)Does ABC Inc.prefer fixed or floating rate debt?
What rate does it pay on its preferred debt?
b)Does XYZ Inc.prefer fixed or floating rate debt?
What rate does it pay on its preferred debt?
c)What are the total interest savings available in this interest rate swap?
d)Which company has a better credit rating?

Question

The following information is given.  ABC Inc.and XYZ Inc.have agreed to swap their debt payments so that each firm gets its preferred debt terms.They can arrange an interest rate swap through Big Bank.Big bank charges 0.15% for its services.The remaining savings from the interest rate swap are equally shared by A and B.
QSD:
 1%  .25% = .75%; after bank fees:
 .75%  .15% = .60% savings available
a)Does ABC Inc.prefer fixed or floating rate debt?
 What rate does it pay on its preferred debt?
b)Does XYZ Inc.prefer fixed or floating rate debt?
 What rate does it pay on its preferred debt?
c)What are the total interest savings available in this interest rate swap?
d)Which company has a better credit rating?

Quizplus · Accepted Answer

The Answer of The following information is given.  ABC Inc.and XYZ Inc.have agreed to swap their debt payments so that each firm gets its preferred debt terms.They can arrange an interest rate swap through Big Bank.Big bank charges 0.15% for its services.The remaining savings from the interest rate swap are equally shared by A and B.
QSD:
 1%  .25% = .75%; after bank fees:
 .75%  .15% = .60% savings available
a)Does ABC Inc.prefer fixed or floating rate debt?
 What rate does it pay on its preferred debt?
b)Does XYZ Inc.prefer fixed or floating rate debt?
 What rate does it pay on its preferred debt?
c)What are the total interest savings available in this interest rate swap?
d)Which company has a better credit rating?

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