1. (SWAPS): Koby & Maru Corporations both seek at the lowest possible cost. They face the following rate structure:

Koby Maru

Credit Rating AA BB

Cost of fixed funds 10.0% 13.0%

Cost of floating funds Libor + 0.5% Libor+1.0%

In what type of funding Koby (Maru) have a comparative advantage?

If a swap is arranged, what is the maximum savings available to both?

Outline a swap such that savings are divided equally between the two.