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34. [12 pts) Companies AAA and BBB are offered the following rates per annum on a $5 million 10-year loan. AAA requires a fixed-rate loan
34. [12 pts) Companies AAA and BBB are offered the following rates per annum on a $5 million 10-year loan. AAA requires a fixed-rate loan while BBB requires a floating-rate loan. Bank of America (BOA) is planning to arrange a fixed-for-LIBOR=R% & LIBOR exchange) swap with a 20-basis- point spread, which will appear equally attractive to AAA and BBB. AAA BBB Fixed Rate 5% 6 % Floating Rate LIBOR+0.5% LIBOR-0.5% 1 (A) The swap rate that is equally attractive to each company without the F.I. is: (B) The transactions of interest rates that AAA pays to or receives from BOA under the swap are: (Show % with Pay and Receive) (C) The transactions of interest rates that BBB pays to or receives from BOA under the swap are: (Show % with Pay and Receive)
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