Question

Company X wants to borrow $10,000,000 floating for 10 years & company Y wants to borrow $10,000,000 fixed for 10 years. The borrowing from the local bank for each firm are:

Local bank rates	Borrow fixed	Borrow Float
Firm X	10%	LIBOR
Firm Y	12%	LIBOR+1.5%

A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR-0.2%; In exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90%.: Y will pay the swap bank annual payments on $10,000,000 at a fixed rate of 10.30%. and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR - 0.15%. Assume YTM is 4%, What is the swap bank NPV from this project?

Answer 1