Firm ABC needs to borrow $1 million at a floating rate. In the market, firm ABC can borrow at 13% fixed rate per year or a floating rate equal to LIBOR. A swap bank proposes a swap contract. Firm ABC pays the swap bank a floating rate equal to LIBOR + 1% per year, and the swap bank pays firm ABC a fixed rate 15% per year. If firm ABC borrows $1 million at 13% fixed rate and gets into this swap contract, what is the value of this swap contract to firm ABC?

Answer rating: 100% (QA)

Firm ABC borrows 1 million at a fixed rate of 13 costing them 13... View the full answer