Interserve and Kier Group can borrow for one year at the following rates:
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Question:
- Interserve and Kier Group can borrow for one year at the following rates:
Interserve | Kier Group | |
Fixed rate | 4.50% | 5.10% |
Floating rate | LIBOR + 0.15% | LIBOR + 0.35% |
- Calculate the quality spread differential for each rate and determine each company's comparative advantage. What does it imply for the borrowing costs of the two companies?
- Develop an interest rate swap in which both companies have an equal saving in their borrowing costs. Assume Interserve desires floating-rate debt and Kier desires fixed-rate debt and that the intermediary swap bank demands a 0.1% fee on the transaction
Related Book For
Corporate Finance Principles And Practice
ISBN: 9781292450940
9th Edition
Authors: Denzil Watson, Antony Head
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