Question: A savings and loan s credit rating has just slipped and
A savings and loan’s credit rating has just slipped, and half of its assets are long term mortgages. It offers to swap interest payments with a money center bank in a $100 million deal. The bank can borrow short term at LIBOR (3 percent) and long term at 3.95 percent. The S&L must pay LIBOR plus 1.5 percent on short term debt and 7 percent on long term debt. Show how these parties could put together a swap deal that benefits both of them.
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