Principles of Corporate Finance

(Barry) #1

SWAPS


example - cont.
benefit to XYZ
floating 7.25 - 7.25 = 0
fixed 10.50 - 10.00 = +.50 net gain .50


benefit to ABC
floating 7.25 - 7.50 = - .25
fixed -10.75 + 11.50 = + .75 net gain .50


benefit to bank
floating +7.25 - 7.25 = 0
fixed 10.75 - 10.50 = +.25 net gain +.25


total benefit = 12,500 (same as w/o bank)

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