ACT 6692 Mod 19 Assignment

ACT 6692 Mod 19 Assignment - ACT 6692 Module 19...

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ACT 6692 Module 19 – Assignment (Problems) 19-1 Fair value hedge. On January 2, 2007, Nolan Co. issued a 4-year, $500,000 note at 6% fixed interest, interest payable semiannually. Nolan now wants to change the note to a variable rate note. As a result, on January 2, 2007, Nolan Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.6% for the first 6 months on $500,000. At each 6-month period, the variable interest rate will be reset. The variable rate is reset to 6.6% on June 30, 2007. Instructions (a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2007. (b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2007. 19-2 Cash flow hedge. On January 2, 2007, Reese Company issued a 5-year, $8,000,000 note at LIBOR with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 6.8% Reese Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a
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