Two firms have gotten quotes for fixed rate and variable rate loans, which shown in the table below. Fixed Floating Firm A 7.00% Libor + 3.50% Firm B 9.00% Libor + 2.00% A. Which firm has an absolute borrowing advantage? Which firm has a relative borrowing advantage? Which market is the relative borrowing advantage in? (2 Marks) B. Assume that the firms wanted to enter into a swap. What is the maximum amount of interest that the firms jointly would be willing to pay a financial intermediary to arrange the swap? (3 Marks) C. Assuming a financial intermediary would charge a 0.50% fee that would be split evenly (.e. both Firm A & B pay 0.25% of the fee), design a swap contract that has Firm A effectively paying a fixed rate while receiving two-thirds (i.e. 66.66%) of the net surplus after fees whereas Firm B would be effectively paying the variable rate while receiving one-third (i.e. 33.33%) of the remaining net surplus after fees. Show that each party to the swap earns or pays the percentage that it should under the swap agreement. (10 Marks) Be sure to show all your work (i.e. supporting calculations). Two firms have gotten quotes for fixed rate and variable rate loans, which shown in the table below. Fixed Floating Firm A 7.00% Libor + 3.50% Firm B 9.00% Libor + 2.00% A. Which firm has an absolute borrowing advantage? Which firm has a relative borrowing advantage? Which market is the relative borrowing advantage in? (2 Marks) B. Assume that the firms wanted to enter into a swap. What is the maximum amount of interest that the firms jointly would be willing to pay a financial intermediary to arrange the swap? (3 Marks) C. Assuming a financial intermediary would charge a 0.50% fee that would be split evenly (.e. both Firm A & B pay 0.25% of the fee), design a swap contract that has Firm A effectively paying a fixed rate while receiving two-thirds (i.e. 66.66%) of the net surplus after fees whereas Firm B would be effectively paying the variable rate while receiving one-third (i.e. 33.33%) of the remaining net surplus after fees. Show that each party to the swap earns or pays the percentage that it should under the swap agreement. (10 Marks) Be sure to show all your work (i.e. supporting calculations)