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Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment: Fixed Rate Floating Rate Company X 3.0%

Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:

Fixed Rate

Floating Rate

Company X

3.0%

LIBOR

Company Y

5.0%

LIBOR+0.2%

Company X requires a fixed-rate investment; company Y requires a floating-rate investment. Below you are designing a swap that will appear equally attractive to X and Y. What are the appropriate rates in A and B in this setup?

a.

Libor; 5%

b.

5%; Libor

c.

Libor+0.2%; 3%

d.

3%; Libor+0.2%

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