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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. BBB Fixed Rate 5% 6% Floating Rate LIBOR+0.5% LIBOR-0.5% (A) What is the transformed rate of loan as the net effect of the swap to AAA with the F.I.? (B) What is the transformed rate of loan as the net effect of the swap to BBB with the F.I
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