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In: Finance

Consider two companies, A and B who can borrow at the following annualised rates: Fixed Floating...

Consider two companies, A and B who can borrow at the following annualised rates:

Fixed

Floating

Company A

4.5%

6 month LIBOR + 0.1%

Company B

6.0%

6 month LIBOR + 0.6%

a) Suppose Company A wants to borrow floating and Company B wants to borrow fixed. What is the potential gain if they enter into a swap? Show your calculations.

b) Design a swap in which the gain from the swap is divided equally between the two companies. Show the interest payment for each company after the swap.

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Expert Solution

jeff jeffy answered 2 years ago
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