Consider the borrowing costs in USD faced by the following three companies:

FixedFloating

A5.0%LIBOR + 0.6%

B6.0%LIBOR + 1.3%

C7.0%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.Find the range for the swap rate within which both companies would benefit from the swap?

b)Suppose company B wants to borrow fixed rate funds. Is it possible for B to reduce its cost of borrowing below 6%, and if so what is the lowest possible cost it could achieve?

c)Suppose company B wants to borrow floating rate funds. Is it possible for B to reduce its cost of borrowing below LIBOR + 1.3%, and if so what is the lowest possible cost it could achieve?