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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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