Problem
Companies A and B have been offered the following rates per annum on a $100 million five-year loan:
|
|
Fixed Rate
|
Floating Rate
|
|
Company A
|
7.0%
|
LIBOR-0.6%
|
|
Company B
|
7.8%
|
LIBOR+0.8%
|
Company A requires a fixed-rate loan; company B requires a floating-rate loan. Design the swap that allocate 70% of advantage to company A and 30% of advantage to company B. Write down the total cost of each company in each case.