Question
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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