Chapter Objectives
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- A. SFr700,000
B. $15,000C. $25,000 D. $40,000 E. $55,000 24. What is the net present value of your swap agreement at a discount rate of 8 percent? A. $10,000 B. $25,993 C. $55,883 D. 59,895E. $60,666 25. If the floating rate stays the same for the first two years and then falls by 1.5 percent, what will be your net payments for the five years? A. $ 75,000 B. $ 90,000 C. $100,000 D. -$150,900 E. -$262,500Use the following information to answer the next five questions: Two counterparties agree to enter a foreign currency swap between American dollars and Swiss francs. One dollar is currently worth 1.4 francs. The American dollar payor will provide $500,000. The interest rate on the dollar is 9 percent, and the Swiss franc rate is 8 percent. The swap calls for a life of three years with annual payments. 26. How much will the provider of the dollar pay at the outset? A. SFr700,000B. SFr500,000 C. SFr357,143 D. SFr200,000 E. SFr125,000 27. If the interest rates do not change, what is the annual dollar interest payment for the foreign borrower of dollars? A. $34,000 B. $40,000 C. $45,000D. $50,000 E. $55,000 28. If a net payment is recorded for interest in year one and exchange rates do not change, what will be the net payment? A. $1,000 B. $2,000 C. $3,000 D. $5,000E. $7,000 29. What will be the total payment in francs by the borrower of dollars for year 3? A. SFr756,000B. SFr500,000 C. SFr400,000 D. SFr350,000 E. SFr 53,500 30. What will be the total payment in dollars by the borrower of francs for year 3? A. $150,000 B. $245,000 C. $540,000 D. $545,000E. $600,000 AnswersMultiple Choice Questions E E E C E A E A A C C B B A B B C E A C E E B D E A C D A D Solutions 20. $7,500,000 x (0.082 - 0.08) = $15,000. 21. $15,000 x the annuity discount factor of $1 for 5 years at 8 percent = $15,000 x 3.993 = $59,895. 22. You will receive a total of $30,000 for the first two years [$7,500,000 x (0.082 - 0.080) x 2]. The new floating rate that you will receive: 8.2% - 1.5% = 6.7%. You will pay a total of $292,500 for the last three years [$7,500,000 x (0.067 - 0.08) x 3 years]. Thus, your net payment over the five years will be -$262,500 ($30,000 - $292,500). 23. $500,000 x SFr1.4 = SFr700,000. 24. $500,000 x 0.09 = $45,000. 25. $500,000 x (0.09 - 0.08) = $5,000. 26. SFr700,000 (1.08) = SFr756,000. 27. $500,000 (1.09) = $545,000. Financial Swaps Download 73.5 Kb. Share with your friends:
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