Suppose company A and B have access to the borrowing market with following rate (table). It is known that A wants to borrow at a fixed rate while B wants to borrow at a floating rate.
Counterparty Fixed Rate Floating Rate
A 8.0% 6-month LIBOR + 0.5%
B 7.0% 6-month LIBOR
Now please answer following questions:
(1) What's the total cost savings can be realized?
(2) Suppose they (A and B) split the cost savings evenly. How much would A pay for its fixed rate funds? How much would B pay for its floating rate funds?
(3) Suppose the intermediary bank gains profit of 0.1%, redo the above problem (2)?