Question: Practice Problem #1: Consider the following borrowing quotes for Companies A and B: Fixed Rate Floating Rate Loan Loan (6-month LIBOR) Firm BBB 10.0% LIBOR

Practice Problem #1: Consider the following borrowing quotes for Companies A

Practice Problem #1: Consider the following borrowing quotes for Companies A and B: Fixed Rate Floating Rate Loan Loan (6-month LIBOR) Firm BBB 10.0% LIBOR + 1.0% Firm AAA 9.0% LIBOR + 0.5% Construct a swap that splits margin equally between the firms with the bank getting 10 bps. Note all cash flows in the spaces near the arrows below. Also calculate the "all-in" cost for each firm. Firm AAA wants to borrow at floating-rate - Firm BBB wants to borrow at fixed-rate Firm BBB Bank Firm AAA All-in borrowing cost to Firm BBB = All-in borrowing cost to Firm AAA =

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