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 proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 10.05 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. What is the value of this swap to the swap bank?

the answer is one of the following (please show work)

The swap bank will earn 10 basis points per year on $10,000,000 = $10,000 per year.

The swap bank will earn 40 basis points per year on $10,000,000 = $40,000 per year.

The swap bank will earn 45 basis points per year on $10,000,000 = $45,000 per year.

The swap bank will earn 5 basis points per year on $10,000,000 = $5,000 per year.