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

investment:

Fixed Rate

Company X

$8\mathrm{.}0\%$

Floating Rate

Company Y

LIBOR

$8\mathrm{.}8\%$

LIBOR

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

A$.$ Assuming X and Y split the gains from the swap in such a way that X gets $60\%$ of the

gains and Y gets $40\%$ of the gains, what are the net investment rates that X and Y can

get?

B$.$ If a Financial Intermediary $($FI$)$ charges $0\mathrm{.}2\%$ a year $($split equally between X and Y$),$ how

would this affect the final rates that the two parties are receiving?

C$.$ Illustrate the swap between X and Y in the presence of a financial intermediary with the

help of a diagram. Please make sure that all rates are properly labeled.