1. Companies X and Y have been offered the following rates per annum on a $5 million 10 year loan: ( 14 pts )

	Fixed	Floating
X4	4%	6-month LIBOR +0.5%
Y	4.5%	6 month LIBOR +1.5%

Company X requires a floating-rate loan; company Y requires a fixed rate loan.

1. Design a swap that will reduce the borrowing costs for both companies and will appear equally attractive to both companies. The swap should only involve the two companies. Please draw the cash flows and identify the rate on each cash flow. Please show how you get the swap rate.
2. Design a swap that will involve a bank, acting as intermediary, and will net the bank 0.3% per annum and will appear equally attractive to X and Y.