Consider the borrowing costs faced by the following three companies:

Fixed Floating

A 5.0% LIBOR + 0.6%

B 6.0% LIBOR + 1.3%

C 7.0% LIBOR + 2,5%

Assume that if any two companies enter into the swap transaction, they split the possible savings equally.

(A) Company A and company C want to engage in the swap transaction. What are the possible combined savings for both companies?

(B) Suppose company A wants to borrow fixed rate funds. Is it possible for A to reduce its cost of borrowing below 5%, and if so, what is the lowest possible cost it could achieve?

(C) Suppose company A wants to borrow floating rate funds. Is it possible for A to reduce its cost of borrowing below LIBOR + 0.6%, and if so, what is the lowest possible cost it could achieve?