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16-1
Chapter 16
Other Derivatives
16-2
Floating Rate Note
emiumPrIndex Rate
Interestterm-Short
RateInterest
16-3
Firm L
Fixed rate loan
Swaps dealer
Firm S
Floating rate loan
Interest Rate Swap
9% [LIBOR + 1.30%]
9.15% 9.30%
LIBOR + 0.10%LIBOR + 0.10%
16-4
Fixed and Floating Rates for Firms L and S
Firm L Firm SFixed Rate 9% 11%
Floating Rate LIBOR + 0.30% LIBOR + 1.30%
16-5
Interest Paid in Swaps
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 L 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%
Interest Paid and Received by Firm S in the Swap
16-6
Convertible Bonds
Call pricePar
TimeMaturityIssue date
Stock value
Straight bond value
$
Convertible price