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*E17-23B (Fair Value Hedge) On January 1, 2014, K-Store Inc. issued a 10-year, $500,000 note at 8% fixed interest, interest payable semiannually. K-Store preferred a variable-rate note, but its lender offered only fixed-rate loans. As a result, K-Store en

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Question

*E17-23B (Fair Value Hedge) On January 1, 2014, K-Store Inc. issued a 10-year, $500,000 note at 8% fixed interest, interest payable semiannually. K-Store preferred a variable-rate note, but its lender offered only fixed-rate loans. As a result, K-Store entered into an interest rate swap on the same day where it agrees to receive 8% fixed and pay LIBOR of 5.6% for the first 6 months on $500,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.2% on June 30, 2014.;Instructions;(a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2014.;(b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2014.

 

Paper#78446 | Written in 18-Jul-2015

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