1. LSI Corporation has a credit rating of AA. LSI can borrow in the 5-year fixed-rate market at 6% and can borrow in the floating-rate market at six-month LIBOR. Rhone Corporation has a credit rating of BBB. Rhone can borrow in the 5-year fixed-rate market at 6.8% and can borrow in the floating-rate market at six-month LIBOR plus 30 basis points. A swap dealer offers the following swap pricing schedules for AA firms and BBB firms. AA Firms (versus 6-month LIBOR) Swap Maturity Dealer Pays Dealer Receives 5 years 5-year T-note 5-year T-note rate + 90 bps rate +95 bps BBB Firms (versus 6-month LIBOR) Swap Maturity Dealer Pays Dealer Receives 5 years 5-year T-note 5-year T-note rate + 75 bps rate + 98 bps The 5-year T-note rate is currently 5.2%. Answer the following questions. Show all work. a. Suppose LSI wishes to end up with a floating rate liability. It borrows $250 million in the 5-year fixed rate market and simultaneously enters into the appropriate swap with the dealer. What is LSI's net borrowing cost? b. Suppose Rhone wishes to end up with a fixed rate liability. It borrows $250 million of 5. year floating rate debt and simultaneously enters into the appropriate swap with the dealer. What is Rhone's net borrowing cost? c. How much better off is LSI by borrowing fixed and swapping for floating versus borrowing directly in the floating rate market? d. How much better off is Rhone by borrowing floating and swapping for fixed versus borrowing directly in the fixed rate market? e. What is the dealer's profit from the swap arrangements with LSI and Rhone? 1. LSI Corporation has a credit rating of AA. LSI can borrow in the 5-year fixed-rate market at 6% and can borrow in the floating-rate market at six-month LIBOR. Rhone Corporation has a credit rating of BBB. Rhone can borrow in the 5-year fixed-rate market at 6.8% and can borrow in the floating-rate market at six-month LIBOR plus 30 basis points. A swap dealer offers the following swap pricing schedules for AA firms and BBB firms. AA Firms (versus 6-month LIBOR) Swap Maturity Dealer Pays Dealer Receives 5 years 5-year T-note 5-year T-note rate + 90 bps rate +95 bps BBB Firms (versus 6-month LIBOR) Swap Maturity Dealer Pays Dealer Receives 5 years 5-year T-note 5-year T-note rate + 75 bps rate + 98 bps The 5-year T-note rate is currently 5.2%. Answer the following questions. Show all work. a. Suppose LSI wishes to end up with a floating rate liability. It borrows $250 million in the 5-year fixed rate market and simultaneously enters into the appropriate swap with the dealer. What is LSI's net borrowing cost? b. Suppose Rhone wishes to end up with a fixed rate liability. It borrows $250 million of 5. year floating rate debt and simultaneously enters into the appropriate swap with the dealer. What is Rhone's net borrowing cost? c. How much better off is LSI by borrowing fixed and swapping for floating versus borrowing directly in the floating rate market? d. How much better off is Rhone by borrowing floating and swapping for fixed versus borrowing directly in the fixed rate market? e. What is the dealer's profit from the swap arrangements with LSI and Rhone