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Companies A and B have received the following interest rate offers on a $20 million, fiveyear loan: Fixed rate per annum Floating rate per annum
Companies A and B have received the following interest rate offers on a $20 million, fiveyear
loan:
Fixed rate per annum Floating rate per annum
Company A 12.4% LIBOR + 0.2%
Company B 13.0% LIBOR + 0.7%
Company A prefers a floating-rate loan and Company B prefers a fixed-rate loan. Design a
swap that will earn a bank, acting as intermediary, 0.1% per annum, and that will benefit
both companies equally. Diagrams are not required.
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