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Companies Alpha and Beta have been offered the following rates per annum on a $5 million 10-year investment: Fixed Rate Floating Rate Company Alpha 8.5%
Companies Alpha and Beta have been offered the following rates per annum on a $5 million 10-year investment:
Fixed Rate | Floating Rate | |
Company Alpha | 8.5% | LIBOR + 0.2% |
Company Beta | 9.8% | LIBOR + 0.5% |
Company Alpha requires a fixed-rate investment; company Beta requires a floating-rate investment. Design a swap that will net a bank, acting as an intermediary, 20 basis points in fees and will appear equally attractive to Alpha and Beta. You must draw a diagram illustrating all cash flows.
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