Company A can borrow money at a fixed rate of 9 percent or a variable rate set at prime plus 1 percent. Company B can borrow money at a variable rate of prime plus 2 percent or a fixed rate of 8.25 percent. Company A prefers a fixed rate and company B prefers a variable rate. A swap dealer can bring them together for a commission of 1% on the swap deal.

Is there any gain for the concerned parties through the swap deal? (2 marks)

If so, show a swapping arrangement, ensuring that both Company A and B are better off and the swap and the swap dealer gets the 1% cut. ( 7 marks)