Mamb Ltd has been able to arrange a loan from the bank at either a 10 per cent fixed rate or at the variable 90-day bank bill rate plus 0.5 percent. Bong Ltd can borrow funds at either 13 per cent or at the bank bill rate plus 2 per cent. The bank bill rate is currently 8 percent.

Mamb Ltd decides to borrow $1 million in funds at a fixed rate of 10 per cent, while Bong Ltd decides to borrow the funds at the variable bank bill rate plus 2 per cent. Immediately following their borrowings, Mamb decides it would prefer a variable interest rate while Bong decides it would prefer a fixed rate. How would the parties agree on an appropriate rate for a swap? Calculate a rate that would be favourable to both parties.