Kolkata
25 Points
Joined March 2010
Please provide the solution to this problem:
Companies A and B have been offered the following rates per annum on a $20million five year loan:
Fixed Rate Floating Rate
Company A 12.0% LIBOR+0.1%
Company B 12.5% LIBOR+0.6%
Company A requires a Floating rate loan and company B requires a fixed rate loan. Design a swap that will net a bank acting as an intermediary, 0.1% per annum and will be equally attractive to both companies. If company B is offered 13.4% instead of 12.5% fixed, how does your answer change?