Question: Company A can issue floating-rate debt at LIBOR + 2.0% and can issue fixed-rate debt at 9.9%. Company B can issue floating-rate debt at LIBOR

Company A can issue floating-rate debt at LIBOR + 2.0% and can issue fixed-rate debt at 9.9%. Company B can issue floating-rate debt at LIBOR + 1.5% and can issue fixed rate debt at 9.5%. Suppose A issues fixed-rate debt and B issues floating-rate debt, after which they engage in the following swap: A will make a floating-rate payment equal to LIBOR + 0.5% to B, and B will make a fixed 8.45% payment to A. What are the resulting net payments of A and B?

		A pays LIBOR + 2.0%, B pays a fixed rate of 9.5%.
		A pays LIBOR + 0.5%, B pays a fixed rate of 8.45%.
		A pays LIBOR + 1.95%, B pays a fixed rate of 9.45%.
		A pays a fixed rate of 9.9%, B pays LIBOR plus 1.5%.
		None of the above answers is correct.

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