A company enters into an interest rate swap in order to hedge a $5,000,000 variable-rate loan. The loan is expected to be fully repaid this year on June 10 . The contract requires that if the interest rate on April 30 of next year is greater than 11%, the company receives the difference on a principal amount of $5,000,000 . Alternatively, if the interest rate is less than 11%, the company must
pay the difference. Which of the following statements is correct regarding this contract?
a. The swap agreement effectively hedges the variable interest payments.
b. The timing of the swap payment matches the timing of the interest payments and, therefore, the variable interest payments are hedged.
c. The timing of the swap payment does not match the timing of the interest payments and, therefore, the variable interest payments are not hedged.
d. This swap represents a fair value hedge.
C
You might also like to view...
A multidomestic strategy would likely include the use of high volume, centralized production facilities to maximize economies of scale.
Answer the following statement true (T) or false (F)
_____ are software applications that help workers produce more in less time.
Fill in the blank(s) with the appropriate word(s).
Suppose a hypothetical CBOT 13-year U.S., semiannual payment, 6% coupon Treasury note futures contract has a quoted price of 89-090. If the note has a $1,000 par value, what is the implied annual interest rate inherent in this futures contract? Do not round your intermediate calculations. ?
A. 7.35% B. 8.30% C. 7.28% D. 8.15% E. 5.97%
Rob owns 300 shares of Blackwood common stock valued at $9 a share. Blackwood has declared a 3-for-1 stock split effective tomorrow. After the split, Rob will own
A) 100 shares valued at about $27 a share. B) 100 shares valued at about $3 a share. C) 900 shares valued at about $27 a share. D) 900 shares valued at about $3 a share.