Lecture 5 Additional Notes DRM - Edubirdie

University:
California State University, Northridge
Course:
FIN 303 | Financial Management
Academic year:

2024
Views:

0

Pages:

2
Author:

customer-7758888

Lecture 5 Additional Notes Comparative advantage: Firm Credit rating Fixed rate Floating rate A A+ 10% Floating rate B B+ 11.4% Floating rate + 1% 1.4% 1% Differences  Firm A pays = 10% + FR – 10.2% = FR-0.2% (A payment to A’s lender + a payment under the terms of the swap – the interest received under the terms of the swap. Similarly, Firm B pays = 11.2% From this swap:  A borrows at a floating rate – 0.2% rather than the floating rate, saves 0.2%  B borrows at a fixed rate of 11.2 % rather than 11.4%, saves 0.2% What is the total gain from this swap? 1.4% - 1% = 0.4% (When the gain is split evenly each counterparty to the swap saves 0.2% as above) What is the proportion of the gain that A (B) receives from this swap? Split evenly → 50% for each. CDS Example  The buyer pays a quarterly payment: 100M x 0.009/4 =$225,000  The cash payoff would be: (1-0.35) x 100M = 65M

Related Documents

Lecture 5 Additional Notes DRM

Lecture 5 Additional Notes DRM - Page 1

Lecture 5 Additional Notes DRM - Page 2

of 2

Recommended Documents

Net Present Value and Other Investment Criteria

Net Present Value and Other Investment Criteria

California State University, Northridge FIN 303 | Financial Management

Lecture Note

Financial Management, Exam-Type Questions for Final Exam

Financial Management, Exam-Type Questions for Final Exam

California State University, Northridge FIN 303 | Financial Management

Answer Key

Time Value of Money - Solutions

Time Value of Money - Solutions

California State University, Northridge FIN 303 | Financial Management

Answer Key

The Basics of Corporate Finance

The Basics of Corporate Finance

California State University, Northridge FIN 303 | Financial Management

Lecture Note

Working With Financial Statements

Working With Financial Statements

California State University, Northridge FIN 303 | Financial Management

Lecture Note

Financial Statement Analysis Notes

Financial Statement Analysis Notes

California State University, Northridge FIN 303 | Financial Management

Lecture Note

An Overview of Financial Management

An Overview of Financial Management

California State University, Northridge FIN 303 | Financial Management

Lecture Note

Financial Ratio Problem Set

Financial Ratio Problem Set

California State University, Northridge FIN 303 | Financial Management

Assignment

Financial Management. Review Notes for Midterm #1

Financial Management. Review Notes for Midterm #1

California State University, Northridge FIN 303 | Financial Management

Answer Key

Financial Management. Answers to Recommended Problems

Financial Management. Answers to Recommended Problems

California State University, Northridge FIN 303 | Financial Management

Assignment

Financial Forecasting

Financial Forecasting

California State University, Northridge FIN 303 | Financial Management

Lecture Note