SECTION III SWAPS (35 POINTS) QUESTION 5 (15 POINTS) Goldman Sachs Investment Bank has two companies as customers who are in the process of raising funds and each has different views on the interest rate movements in the future. Company A thinks that interest rates would stay low and Company B feels that rates will rise. Company A offered either a Fixed Rate of 7% or Float LIBOR +75 bps Company B offered either a Fixed Rate of 8.25% or Float LIBOR +150 bps Given the different views, the broker recommends that Company A and Company B get into Swap Agreement with a 6.5% Swap price as follows: Show the a) net interest pay and b) benefits for both parties \begin{tabular}{|l|l|l|} \hline WORKSHEET input title here & Company A & Company B \\ \hline Fixed Rate & & \\ \hline Float (LIBOR+\%) & & \\ \hline \end{tabular} Cashflow Company A Company B Payment to the Bank Interest Rate Payment Fixed (\%) Inter. Rate Floating Pmt Spread (\%) LBOR Payment \begin{tabular}{|l|l|} \hline & \\ \hline & \\ \hline & \\ \hline \end{tabular} Payment/Received for SWAP (Pay) /Receive (LBBOR) \begin{tabular}{|l|l|} \hline & \\ \hline & \\ \hline \end{tabular} add the word "LIBOR" and add the minus or plus as TEXT (Pay) / Receive (Swap Rate) \begin{tabular}{|l|l|} \hline Company A & Company B \\ \hline & \\ \hline & \\ \hline \end{tabular} DO NOT ADD TEXT - ONLY NUMBERS HERE (i.e. if its LIBOR +1.0% only add the 1.0%)