Firm A can borrow fixed rate at 10%. It can also borrow floating at Libor + 1%.
Question:
Firm A can borrow fixed rate at 10%. It can also borrow floating at Libor + 1%. The market swap rate at the bid is Libor versus 8.9% and is Libor versus 9.1% at the ask (i.e., the firm can enter into a swap by paying fixed at 9.1% or receiving at 8.9%). Find the cheapest form of financing for the firm if it wishes to be in floating-rate debt.
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We already know that the firm can borrow at Libor 1 We need to check if it can do better by borrow...View the full answer
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