Question
Answer 20-21 using the following information. The numbers are annualized borrowing rates (%). Firm Fixed FRN A 15 Libor+2% B 12 Libor+1% Suppose, after some
Answer 20-21 using the following information. The numbers are annualized borrowing rates (%).
Firm Fixed FRN
A 15 Libor+2%
B 12 Libor+1%
Suppose, after some negotiations, they agreed to the swap on a mutually beneficial term and decided to split the savings from the swap equally. After 1 yr, A declared bankruptcy and had to default on the swap. Which of the following statements is correct?
B's net borrowing cost is Libor | ||
B will continue to pay 14% fixed rate and receive Libor+1% from the dealer | ||
B's net borrowing cost is Libor+2% | ||
A will continue to pay 14% to bondholders and Libor+1% to dealer |
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