2. Accounting
3. cb solutions heather oreilly the treasurer of cb solutions believes...

# Question: cb solutions heather oreilly the treasurer of cb solutions believes...

###### Question details

CB Solutions. Heather​ O'Reilly, the treasurer of CB​ Solutions, believes interest rates are going to​ rise, so she wants to swap her future floating rate interest payments for fixed rates.​ Presently, she is paying LIBOR plus 2.00​% per annum on \$5,100,000 of debt for the next two​ years, with payments due semiannually. LIBOR is currently 4.01​% per annum. Heather has just made an interest payment​ today, so the next payment is due six months from today.

Heather finds that she can swap her current floating rate payments for fixed payments of 7.005​% per annum. ​ (CB Solutions' weighted average cost of capital is 12​%, which Heather calculates to be 6​% per​ six-month period, compounded​ semiannually).

a. If LIBOR rises at the rate of 50 basis points per​ six-month period, starting​ tomorrow, how much does Heather save or cost her company by making this​ swap?

b.If LIBOR falls at the rate of 25 basis points per​ six-month period, starting​ tomorrow, how much does Heather save or cost her company by making this​ swap?