A-Star Holidays (AH) and B-Star Boats (BB) each need $10 million in funds and are quoted the following rates in the fixed and floating markets. If AH accepts the fixed-rate funds and BB the floating-rate funds, structure a swap where they both benefit equally. Show your calculations. (Total 15 marks)

AH - fixed: 5.3 per cent; floating: BBSW + 1 per cent;

BB - fixed: 7.0 per cent; floating: BBSW + 1.5 per cent.

A. How much can each company reduce their borrowing rates by?

B. Provide details of the swap you have structured in a table. Include amounts each pays the market and the other, amounts received from the other and the net result.

C. How much would AH receive from BB if they negotiated to get two third of the total benefit instead?