Company A desires a variable-rate loan but currently has a better deal from the fixed-rate market at
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Question:
Company A desires a variable-rate loan but currently has a better deal from the fixed-rate market at a rate of 11%. If Company A borrows from the variable-rate market, the cost would be LIBOR+2%. In contrast, Company B, which prefers a fixed-rate loan, has a better deal from the variable-rate market at LIBOR+3%. If Company B borrows from the fixed-rate market, the cost would be 15%. What is the spread differential between Companies A and B?
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