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Companies X and Y have been returning the following rates per year on a $5 million 10-year investment : Fixed rate Floating rate Company X
Companies X and Y have been returning the following rates per year on a $5 million 10-year investment:
Fixed rate | Floating rate | |
Company X | 8.0% | LIBOR |
Company Y | 8.8% | LIBOR + 0.2% |
Company X requires a fixed-rate investment; company Y requires a floating-rate investment.
Design a swap with graph that will net a bank, acting as intermediary, 0.1% per annum and that will appear equally attractive to both companies. (The final swap is not unique. as long as it is logical, I count it right)
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