7 Phillip's Screwdriver Company has borrowed $13 million from a bank at a floating interest rate of 2 percentage points

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7 Phillip S Screwdriver Company Has Borrowed 13 Million From A Bank At A Floating Interest Rate Of 2 Percentage Points 1 (82.48 KiB) Viewed 27 times

7 Phillip's Screwdriver Company has borrowed $13 million from a bank at a floating interest rate of 2 percentage points above three- month Treasury bills, which now yield 7%. Assume that interest payments are made quarterly and that the entire principal of the loan is repaid after five years. Phillip's wants to convert the bank loan to fixed-rate debt. It could have issued a fixed-rate five-year note at a yield to maturity of 16%. Such a note would now trade at par. The five-year Treasury note's yield to maturity is 4%. One year from now short-and medium-term Treasury yields decrease to 13%, so the term structure is then flat. (The changes actually occur in month 5.) Phillip's credit standing is unchanged; it can still borrow at 2 percentage points over Treasury rates.) c. One year from now, what net swap payment will Phillip's make or receive? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Net swap payment million per quarter d. One year from now, suppose that Phillip's wants to cancel the swap. How much would it need to pay the swap dealer? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Amount to pay million