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

Fixed Floating

A 2.5% LIBOR + 0.6%

B 3.0% LIBOR + 1.3%

C 4.1% LIBOR + 1.8%

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

a) Company A and company B 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 C wants to borrow fixed rate funds. Is it possible for C to reduce its cost of borrowing below 4.1%, and if so what is the lowest possible cost it could achieve?

c) Suppose company C wants to borrow floating rate funds. Is it possible for C to reduce its cost of borrowing below LIBOR + 1.8%, and if so what is the lowest possible cost it could achieve?