Consider the borrowing costs in USD faced by the following three companies: Fixed Floating A 4.5% SOFR
Question:
Consider the borrowing costs in USD faced by the following three companies:
Fixed Floating
A 4.5% SOFR + 0.6%
B 6.0% SOFR + 1.7%
C 5.1% SOFR + 1.0%
Assume that if any two companies enter the swap transaction, they split the possible savings equally.
a. Company A and company B want to engage in the swap transaction. Find the range for the swap rate within which both companies would benefit from the swap.
b. Suppose company C wants to borrow fixed-rate funds. Is it possible for C to reduce its cost of borrowing below 5.1%, and if so, what is the lowest possible cost it could achieve
c. Suppose company C wants to borrow floating-rate funds. Is it possible for C to reduce its cost of borrowing below SOFR + 1%, and if so, what is the lowest possible cost it could achieve?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill