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Companies A and B have been offered the following rates per annum on a $20 million five-year loan: Fixed Rate Floating Rate Company A 5.0%
Companies A and B have been offered the following rates per annum on a $20 million five-year loan:
Fixed Rate
Floating Rate
Company A
5.0%
LIBOR+0.1%
Company B
6.4%
LIBOR+0.6%
Company A requires a floating-rate loan; company B requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, 0.1% per annum and that will appear equally attractive to both companies.
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