Companies A and B have been offered the following rates per annum on a $20 million five-year

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Companies A and B have been offered the following rates per annum on a $20 million five-year loan: Fixed rate Floating rate Company A 12.0% LIBOR + 0.1% Company B 13.4% LIBOR + 0.6% Company A requires a floating-rate loan; company B requires a fixed-rate loan. Design a swap that will appear equally attractive to both companies (that is they split possible savings equally). Hint: figure out a range for the swap rate.

4. Consider the following borrowing costs faced by the following 3 companies: Fixed rate Floating rate Company A 7.0% LIBOR + 0.1% Company B 6.5% LIBOR - 0.1% Company C 7.3% LIBOR + 0.2% If company A wants to borrow floating-rate funds, what is the lowest possible cost of funds that this company could achieve? Assume that if any two companies enter into the swap transaction, they split the possible savings equally. Hint: consider all possible ways that company A could borrow floating-rate funds.