Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown here: Fixed-Rate Borrowing Cost Company X 10% Company Y 12% Floating-Rate Borrowing Cost LIBOR LIBOR + 1.5% A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR- 0.15 percent; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90 percent. Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR - 0.15 percent. 13252713924788666_1.ext What is the value of this swap to the swap bank? The swap bank will lose money on the deal. The swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year. The swap bank will break even. None of the options is the right answer.