Question: Use the following data to answer this question: Fixed Floating Firm AAA 10% LIBOR + 0.5% Firm BBB 11% LIBOR + 0.2% Spread? ? ?

Use the following data to answer this question:

Fixed

Floating

Firm AAA

 10% LIBOR + 0.5%

Firm BBB

 11%

LIBOR + 0.2%

Spread?

 ? ?

2. Firm AAA has a/an ______ advantage in ________ markets.

a. Comparative, both

b. Absolute, both

c. Comparative, fixed

d. Absolute, floating

3. Use the data in the previous question to answer this question.

If you design a swap that is equally attractive to both firms, what must Firm AAA pay Firm BBB?

a. 9.25%

b. 9.75%

c. LIBOR + 0.25

d. LIBOR + 1.75

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