Chapter 16 Other Derivatives.

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Chapter 16 Other Derivatives

Floating Rate Note

Interest Rate Swap Swaps dealer Firm L Firm S Fixed rate loan 9.15% 9.30% Swaps dealer Firm L Firm S LIBOR + 0.10% LIBOR + 0.10% 9% [LIBOR + 1.30%] Fixed rate loan Floating rate loan

Fixed and Floating Rates for Firms L and S Firm L Firm S Fixed Rate 9% 11% Floating Rate LIBOR + 0.30% LIBOR + 1.30%

Interest Paid in Swaps Interest Paid and Received by Firm L in the Swap Pays Interest on Long-Term Fixed-Rate Bond -9% Receives Fixed Rate from Swaps Dealer 9.15% Pays Floating Rate to Swaps Dealer -[LIBOR + 0.10%] Net -[LIBOR – 0.05%] Interest Paid and Received by Firm S in the Swap Pays Interest on Short-Term Floating-Rate Loan -[LIBOR + 1.30%] Pays Fixed Rate to Swaps Dealer -9.30% Receives Floating Rate from Swaps Dealer +[LIBOR + 0.10%] Net -10.50%

Convertible Bonds $ Time Par Issue date Maturity Convertible price Stock value Call price Par Straight bond value Time Issue date Maturity

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