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Companies A and B have been offered the following rates per annum on a $20 million 5-year loan, and a bank, acting as intermediary, will

Companies A and B have been offered the following rates per annum on a $20 million 5-year loan, and a bank, acting as intermediary, will charge 0.20% per annum (10 basis points) to arrange and manage the swap, which appears equally attractive to A and B.

Fixed Rate

Floating Rate

Company A

5.5%

LIBOR + 0.20%

Company B

6.5%

LIBOR + 0.40%

a)

Company A requires a floating-rate loan, and company B requires a fixed-rate loan. What is the economic gain to each firm, net of the bank's fee? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%, or 0.50 to indicate 0.50%).

b)

Company A requires a floating-rate loan, and company B requires a fixed-rate loan. If Company A pays LIBOR to the bank, and the bank pays LIBOR to Company B, what rate will Company A receive from the bank? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%).

c)

Company A requires a floating-rate loan, and company B requires a fixed-rate loan. If Company A pays LIBOR to the bank, and the bank pays LIBOR to Company Y, what rate will Company B pay to the bank? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%).

d)

Company A requires a floating-rate loan, and company B requires a fixed-rate loan. What is the net rate the company B will pay after the swap is arranged? (please enter your answers as percentages, for instance answer 9.0 to indicate 9.0%).

e)

Company A requires a floating-rate loan, and company B requires a fixed-rate loan. What is the net rate the company A will pay after the swap is arranged?

Group of answer choices

LIBOR -+0.10%

LIBOR - 0.30%

LIBOR - 0.10%

LIBOR

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