Companies A and B have been offered the following rates per annum on a 100 million five-year loan:
| |
Fixed rate
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Floating rate
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|
Company A
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8.0%
|
TB + 1.0%
|
|
Company B
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10.6%
|
TB + 1.6%
|
Company A requires floating rate borrowing whereas company B requires fixed rate borrowing.
Required
Design a swap that will be equally attractive to the two companies.
Assuming the two companies contract a financial intermediary who will charge 0.12% will per annum design a swap that will be equally attractive to the two companies.
Assuming the financial intermediary adjusted his charge to 18 basis points would the swap still be tenable? If yes design a swap that will be equally attractive to the two companies.