Explain the gamble P&G took on its 1993 dollar-denominated interest rate swap
What will be an ideal response?
P&G's interest rate swap can be divided into a plain vanilla swap and "the gamble." In the gamble, P&G sold BT the equivalent of a call option, which earned P&G an annual premium of 75 basis points (later changed to 88 basis points) on the $200 million notional principal, in return for P&G agreeing to pay BT a fixed, semi-annual interest. The fixed rate depended on the difference between the yield of a five-year U.S. Treasury Note and the price of a 30-year U.S. Treasury Bond on 4 May 1994 (i.e., six months after the deal was signed). Therefore, P&G paid nothing to BT for the first half-year, but thereafter, its fixed interest payments would be paid half-yearly for the remaining 4.5 years of the contract in nine semi-annual payment periods. Clearly, P&G was betting that interest rates would fall, but instead they rose.
You might also like to view...
If you would like to emerge as a leader in a group project for a class, what are two communication behaviors you should demonstrate?
What will be an ideal response?
Who under the oversight of the firm's governing board, prepares the financial statements?
a. independent auditor b. Securities and Exchange Commission c. Public Companies Accounting Oversight Board d. general counsel e. management
The income statement typically provides information about the operating results of business segments
Indicate whether the statement is true or false
(a) Consider the product structure shown below. Assuming 1 A is to be made, how many units of each of the other items would need to be made?
(b) If there are 20 of every item except A in on-hand inventory, how many As can be assembled? What will be an ideal response?