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Question 26 (7 points) Mary Martin, the treasurer of Canon Candy Company, believes interest rates...

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Question 26 (7 points) Mary Martin, the treasurer of Canon Candy Company, believes interest rates are going to rise, so she wants to swap the company's future floating-rate interest payments for fixed-rate ones. At present, her company is paying LIBOR + 2% per year on C$5 million of debt for the next 2 years, with payments due semi-annually. LIBOR is currently 4% per year. Martin has just made an interest payment today, so the next payment is due 6 months from today. Martin finds that she can swap her company's current floating-rate payments for fixed payments of 7% per year. (Canon's WACC is 12%, which Martin calculates to be 6% per 6-month period; compounded semi-annually.) Required: a) IF LIBOR rises at the rate of 50 basis points (that is, 0.5%) per 6-month period, starting tomorrow, how much does Martin save or cost her company by making this swap over the 2-year period? b) If LIBOR falls at the rate of 25 basis points (that is, 0.25%) per 6-month period, staring tomofrow, how much does Martin save or cost her company by making this swap? Briefly discuss your answers to both parts, namely, under what interest rate scenario a borrower should swap a floating-rate for a fixed one

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