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

A) Company A and C want to engage in the swap transaction. What is 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 of 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?