Question
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
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 |
| Floating-Rate |
| Borrowing Cost |
| Borrowing Cost |
Company X | 10% |
| LIBOR |
Company Y | 12% |
| LIBOR + 1.5% |
A swap bank is involved and quotes the following rates five-year dollar interest rate swaps at 10.05 percent10.45 percent against LIBOR flat. Assume both X and Y agree to the swap bank's terms. Fill in the values for A, B, C, D, E, & F on the diagram.
A = LIBOR; B = 10.45%; C = 10.05%; D = LIBOR; E = LIBOR; F = 12% | ||
A = 10%; B = 10.45%; C = 10.05%; D = LIBOR; E = LIBOR; F = LIBOR + 1% | ||
A = 10%; B = 10.45%; C = LIBOR; D = LIBOR; E = 10.05%; F = LIBOR + 1% | ||
A = 10%; B = LIBOR; C = LIBOR; D = 10.45%; E = 10.05%; F = LIBOR + 1 |
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