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(b) The followings are th borrowing rates of Firm C and D in fixed-rate and floating rate markets: Firm C Firm D Fixed-rate 5.0% 8.5%

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(b) The followings are th borrowing rates of Firm C and D in fixed-rate and floating rate markets: Firm C Firm D Fixed-rate 5.0% 8.5% Floating rate LIBOR+1.8% LIBOR+3.2% Because of the nature of their business, Firm C needs to secure effectively floating-rate financing, while Firm D to secure effectively fixed-rate financing. A financial institution is willing to be the intermediary in an interest rate swap between Firm C and D if it can charge at least 0.1% as fees. What is the range of value of X in the following swap arrangement to ensure there are incentives for all the parties (Firm C, Firm D, and the financial institution) to involve? Give your answer to the nearest 0.01%. Note that the financial institution will not be interested if it cannot secure a cash flow of at least 0.1% (as fees). (6+X)% 6% Firm C Financial Institution Firm D LIBOR+3.0 LIBOR+X% (b) The followings are th borrowing rates of Firm C and D in fixed-rate and floating rate markets: Firm C Firm D Fixed-rate 5.0% 8.5% Floating rate LIBOR+1.8% LIBOR+3.2% Because of the nature of their business, Firm C needs to secure effectively floating-rate financing, while Firm D to secure effectively fixed-rate financing. A financial institution is willing to be the intermediary in an interest rate swap between Firm C and D if it can charge at least 0.1% as fees. What is the range of value of X in the following swap arrangement to ensure there are incentives for all the parties (Firm C, Firm D, and the financial institution) to involve? Give your answer to the nearest 0.01%. Note that the financial institution will not be interested if it cannot secure a cash flow of at least 0.1% (as fees). (6+X)% 6% Firm C Financial Institution Firm D LIBOR+3.0 LIBOR+X%

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