We consider two firms A and B that have the same financial needs in terms of...
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We consider two firms A and B that have the same financial needs in terms of maturity and principal ($10 million loan and a 5-year maturity). The two firms can borrow money in the market at the following conditions: Firm A B We suppose that firm A prefers a floating-rate debt as firm B preters a fixed-rate debt. What is the swap they will structure to equally optimize their financial conditions? Summarize your analysis and fill in the following table: Choice 1: Without Swap Financing cost based on preference Fixed rate 5% 8% Choice 2: With Swap Initial Financing from market Swap A to B Swap B to A Net financing cost with Swap Net Gain Floating rate Libor Libor +2% Firm A (Libor) Firm B Libor We consider two firms A and B that have the same financial needs in terms of maturity and principal ($10 million loan and a 5-year maturity). The two firms can borrow money in the market at the following conditions: Firm A B We suppose that firm A prefers a floating-rate debt as firm B preters a fixed-rate debt. What is the swap they will structure to equally optimize their financial conditions? Summarize your analysis and fill in the following table: Choice 1: Without Swap Financing cost based on preference Fixed rate 5% 8% Choice 2: With Swap Initial Financing from market Swap A to B Swap B to A Net financing cost with Swap Net Gain Floating rate Libor Libor +2% Firm A (Libor) Firm B Libor
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