Hello, Please , I don't understand why Keshi should choose fixed over floating rate since Keshi is anticipating interest rate to increase or decrease by 0.5%. They are expecting to borrow so they're hedging against a rising interest rate. So at worst if interest rate increases it'll be 4.3% (3.80%+0.50%) which is better than 5.04%. But if Keshi chooses Variable rate it is L-0.06% , that is whatever LIBOR rate is Keshi will go below LIBOR by 60 basis point. And they're anticipating LIBOR to only increase by 0.50% to 4.3%( Less than 5.04%). And the question doesn't tell Keshi prefers Fixed. I'm a little confused.
1) In the question they will never state which rate is preferred. 2) When swap is given you have to compare your fixed and variable rate with the counterparty fixed and variable rate and see where you getting the higher benefit in variable rate or fixed rate. For example the difference between the 2 fixed rates (your company and counterparty) is 5% but difference between variable rate 3% because LIBOR will be cancelled when finding difference between two variable rates. This shows your having a higher difference in fixed rate 5% vs 3% then under swap your preferred rate is fixed. In conclusion without swap variable and with swap fixed.
Also, why did you deduct loan - LIBOR +0.4% with interest rate paid of 4.6% and add floating rate received? why isn't it 5.5% for fixed rate paid? Sorry, i watched your 2022 lectures and came back to this and was confused. Hope you could clear my doubts, understand you're doing this out of goodwill.
why did we deduct 0.22 instead of 0.11. I am finding it difficult to understand due to the lack of explanation. However, I appreciate the effort in crafting this
can you plz explain how swap is done throuth the method we did earlier i ques no 40 buryecs
Hello,
Please , I don't understand why Keshi should choose fixed over floating rate since Keshi is anticipating interest rate to increase or decrease by 0.5%.
They are expecting to borrow so they're hedging against a rising interest rate. So
at worst if interest rate increases it'll be 4.3% (3.80%+0.50%) which is better than 5.04%. But if Keshi chooses Variable rate it is L-0.06% , that is whatever LIBOR rate is Keshi will go below LIBOR by 60 basis point. And they're anticipating LIBOR to only increase by 0.50% to 4.3%( Less than 5.04%). And the question doesn't tell Keshi prefers Fixed.
I'm a little confused.
1) In the question they will never state which rate is preferred.
2) When swap is given you have to compare your fixed and variable rate with the counterparty fixed and variable rate and see where you getting the higher benefit in variable rate or fixed rate.
For example the difference between the 2 fixed rates (your company and counterparty) is 5% but difference between variable rate 3% because LIBOR will be cancelled when finding difference between two variable rates. This shows your having a higher difference in fixed rate 5% vs 3% then under swap your preferred rate is fixed.
In conclusion without swap variable and with swap fixed.
@@SabiAkther Thank you very much. I get it now
Also, why did you deduct loan - LIBOR +0.4% with interest rate paid of 4.6% and add floating rate received? why isn't it 5.5% for fixed rate paid? Sorry, i watched your 2022 lectures and came back to this and was confused. Hope you could clear my doubts, understand you're doing this out of goodwill.
I did not understand it. I did it the same way you solved a previous swap video and I failed it.
Send me a message on my email
why did we deduct 0.22 instead of 0.11. I am finding it difficult to understand due to the lack of explanation. However, I appreciate the effort in crafting this
THANK YOU SO MUCH!!!
Please highlight the parts you're referring to from the question, it will be easier to understand for us!!
Ok I will take care of it from next time. Thank You