Companies A and B have been offered the following rates per annum on a $20 million 5-year
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Question:
Companies A and B have been offered the following rates per annum on a $20 million 5-year loan, and a bank, acting as intermediary, will charge 0.10% per annum (10 basis points) to arrange and manage the swap, which appears equally attractive to A and B.
Fixed Rate | Floating Rate | |
Company A | 6.0% | LIBOR |
Company B | 7.2% | LIBOR + 0.50% |
Please answer all 5 questions. Thanks.
- Company A requires a floating-rate loan, and company B requires a fixed-rate loan. What is the economic gain to each firm, net of the bank's fee? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%).
- If Company A pays LIBOR to the bank, and the bank pays LIBOR to Company B, what rate will Company A receive from the bank? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%).
- If Company A pays LIBOR to the bank, and the bank pays LIBOR to Company B, what rate will Company B pay to the bank? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%).
- If Company A pays LIBOR to the bank, and the bank pays LIBOR to Company B, what is the net rate that company A will pay?
- If Company A pays LIBOR to the bank, and the bank pays LIBOR to Company B, what is the net rate that company B will pay? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%).
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