FIN 4486 – Company A can borrow fixed at 7.9 percent and floating

Subject: Business    / Finance
Question

Company A can borrow fixed at 7.9 percent and floating at LIBOR percent. Company B can borrow fixed at 8.9 percent and floating at LIBOR+0.28571 percent. A financial intermediary charges a fee of 0.1 percent. Company A wishes to borrow floating and company B wishes to borrow fixed. Assume the gain is evenly split between the two parties and floating rate legs are LIBOR. Design the swap. What is the company A’s fixed rate leg and company B’s fixed rate leg, respectively.
a.

A: receive 8.3071, B: pay 8.2071 percent
b.

A: receive 7.5929, B: pay 9.4929 percent
c.

A: pay 8.2071, B: receive 8.3071 percent
d.

A: receive 8.2071, B: pay 8.3071 percent