Note: In all the problems, when it says that both counter partiers of the swap are "equally happy", or that the swap is "equally attractive", it means that the swap is set such that both parties gain the same amount of interest rates.

Q3. 7.1 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 5.0% LIBOR 0.1%

Company B 6.4% LIBOR 0.6%

Company A requires a floating-rate loan; Company B requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, 0.1% per annum and that will appear equally attractive to both companies.

In this question, assume that the swap is for 5 years and that LIBOR turned out to be: 4%, 5%, 6%, 7% and 8%. Show the cash flow to A, B and swap dealer.

Q4.7.9 Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:

Fixed rate floating rate

Company X 8.0% LIBOR

Company Y 8.8% LIBOR

Company X requires a fixed-rate investment; company Y requires a floating-rate investment. Design a swap that will net a bank, acting as intermediary, 0.2% per annum and will appear equally attractive to X and Y.

In this question, assume that the swap is for 5 years and that LIBOR turned out to be: 7%, 8%, 9%, 10% and 11%. Show the cash flow to A, B and swap dealer.