There are two firms with different borrowing rates - Firm A can borrow  floating at LIBOR + 0.5% or fixed at 10.5%; firm B can borrow floating LIBOR + 1% and fixed at 11%.

Firm A will issue floating rate but it wants fixed rate;

Firm B wants floating rate, but it will issue fixed rate. Firm B also makes an additional "side payment" of 0.7% to Firm A.

- With the interest rate swap, what's the final cash flow for A and B, respectively?
-If the side payment is 0.3% instead of 0.7%, should they still take the swap or not?  Why?

Answer rating: 100% (QA)

Final Cash Flow A will Borrow Floating Rate loan and will give it to B Firm A will Pay ... View the full answer