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Company A wants to borrow at a fixed rate. Company B wants to borrow at floating rate. Given their cost of borrowing below, design a
Company A wants to borrow at a fixed rate. Company B wants to borrow at floating rate. Given their cost of borrowing below, design a swap that benefit both of them. Assume that a financial institution backs the swap for a fee of 0.03%. Draw the cash flow chart for the swap deal. What are the effective rates that A and B end up paying?
Fixed rate Floating rate
A 7.2% Libor + 2%
B 5% Libor + 0.5%
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