hi
sir i watched your lectures again. now i m bit clear about swap. but in this question the fixed annual rate paid by company confused me.
company want to fix the rate. what we do is opposite. company will go for Y+60 and bank with fixed rate of 3.7625
then they swap
bank will pay yield
company will pay fix 3.7625...but how this amount?
now if we see comparative like if company pay fix and bank on yield total is Y+3.7625
and if company pay floating and bank pay fix then its y+4.4625
so first one give low rate and so comparative gain of .6
own
company y+.6-.3=y+0.3
bank 3.7626- .3=3.4625
total =y+4.4625
swap
company 3.7625
bank y
total =y+3.7625
or in this question its different..end result for company is 3.7625
and for bank its y
please help
Ask the Tutor ACCA AFM
sembilan 6/12
The 3.7625 is given in the question - it says that Sembilan would pay Ratus a fixed annual rate of 3.76 1/4 %.
So they will borrow floating and will pay L + 0.6%.
They will received L from Ratus
They will pay Ratus 3.7625%
They will pay a fee of 0.2%
So the total net payment is L + 0.6 - L + 3.7625 + 0.2 = 4.5652%, and this is fixed whatever happens to LIBOR.
thank you sir now i get it :)
You are welcome :-)
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