Company "A" and Company "B" can take out a 4-year loan with the following interest rates:

Company "A"

Company "B"

Fixed interest rate

10%

11.5%

variable interest rate

LIBOR

LIBOR + 0.5%

The following is requested:

Calculate the differential between interest rates.
Create a swap in which company "A" wants a variable interest rate and company "B" wants a fixed interest rate.