Question: Carter Enterprises can issue floating-rate debt at LIBOR + 1% or fixed-rate debt at 9%. Brence Manufacturing can issue floating-rate debt at LIBOR + 2.7%

Carter Enterprises can issue floating-rate debt at LIBOR + 1% or fixed-rate debt at 9%. Brence Manufacturing can issue floating-rate debt at LIBOR + 2.7% or fixed-rate debt at 11%. Suppose Carter issues floating-rate debt and Brence issues fixed-rate debt. They are considering a swap in which Carter makes a fixed-rate payment of 7.35% to Brence and Brence makes a payment of LIBOR to Carter. What are the net payments of Carter and Brence if they engage in the swap?

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