Two companies have approached a bank each seeking to enter into a $1 million intermediated interest rate
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Question:
Two companies have approached a bank each seeking to enter into a $1 million intermediated interest rate swap. The following information in relation to the borrowing capacity of each company is provided.
Debt markets | Firm A | Firm B |
Fixed-rate funds | 10.5% | 8.5% |
Variable-rate funds | BBSW + 2.4% | BBSW + 1.3% |
A. construct a swap that will benefit all parties based on the following conditions.
The bank will obtain a spread of 0.10%.
The beneficial gains will be shared equally between company A and company B.
B. Include a payoff table to show the cash flows of the intermediated swap for the bank and the two companies. Show all workings.
Related Book For
Introduction to Law and the Legal System
ISBN: 978-0495899334
10th Edition
Authors: Frank August Schubert
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