Companies M and N have been offered the following rates per annum on a $100 million...

Companies M and N have been offered the following rates per annum on a $100 million eight-year loan:

_________________________________________

Fixed Rate Variable Rate

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Company M 14% LIBOR + 1%

Company N 18% LIBOR + 2%

_________________________________________

Company M requires a floating-rate loan; Company N requires a fixed-rate loan. A bank, acting as intermediary, will charge 1% per annum in a swap.

(a) Calculate net gain from a swap that will appear equally attractive to both companies.

(b) What rates of interest will M and N end up paying after the swap?

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago

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