Problem
Companies X and Y have been offered the following rates per annum on a $1 million 5-year investment:
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|
Fixed Rate
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Floating Rate
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|
Company X
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4.5%
|
LIBOR-0.6%
|
|
Company Y
|
5.8%
|
LIBOR-0.4%
|
Company X requires a fixed-rate investment; company Y requires a floating-rate investment. Design a swap that will net a bank, acting as an intermediary, 0.3% per annum, and will appear equally attractive to X and Y.