Question
Assume company A has comparative advantage in fixed rate loan mark and company B in float rate loan market, but A wants to pay a
Assume company A has comparative advantage in fixed rate loan mark and company B in float rate loan market, but A wants to pay a floating rate and company B wants to pay a fixed rate on a $10 million 5-year loan.
| A | B |
Quotes (%) |
|
|
Floating | LIBOR + 0.3% | LIBOR + 0.75% |
Fixed | 11% | 14% |
Company A is quoted 11% fixed-rate financing or a floating rate of LIBOR + 0.3%. In contrast, company B is quoted a fixed-rate financing at 14% and a floating rate financing at LIBOR + 0.75%. Calculate the net savings (in dollar amount) to both parties if a swap is entered into between A and B if B pays A 12.0% and A pays B LIBOR.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started