Question: Finance question Company A can borrow at a floating rate at the floating prime rate or fixed at 10%. Company B can borrow at a

 Finance question Company A can borrow at a floating rate at

Finance question

the floating prime rate or fixed at 10%. Company B can borrow

Company A can borrow at a floating rate at the floating prime rate or fixed at 10%. Company B can borrow at a floating rate of prime + 2% or a fixed rate of 11%. Company A wants a fixed-rate loan, whereas Company B would prefer floating-rate debt. The swap dealer proposes that A makes fixed payments of 9.5% to the swap dealer and Company B will make floating payments to the swap dealer at prime + 1.75%; and the Swap Bank pay the prime rate to Company A and the Swap Bank pay 11% to Company B. a. Draw the swap diagram. (2 points) b. What will be benefit (in %) of the swap for each counter-party and the swap dealer? (4 points.) c. What idoes the quality spread differential (QSD) represent? Do you think it was split fairly in this case? Why or why not? If this situation were occurring at the time of the IBM-World Bank case, how do you think the QSD would be different?(4 points)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!