Suppose company A and B operate in the same market. To raise additional capital, company A can borrow at 6% interest or at LIBOR +3%, while company B can access outside financing at 8% interest or LIBOR +6%. If you are a bank that offers interest rate swaps, how would you devise a contract that is equally beneficial for both of these companies if you seeks to earn 0.2% in commission?

Answer rating: 100% (QA)

Step 15 Assuming that the two companies are equally risky the bank would want to offer them a swap c... View the full answer