Question
Consider the borrowing costs in USD faced by the following three companies: Fixed Floating A 4.5% SOFR + 0.6% B 6.0% SOFR + 1.7% C
Consider the borrowing costs in USD faced by the following three companies:
Fixed Floating
A 4.5% SOFR + 0.6%
B 6.0% SOFR + 1.7%
C 5.1% SOFR + 1.0%
Assume that if any two companies enter 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 5.1%, 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 SOFR + 1%, and if so, what is the lowest possible cost it could achieve?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a To find the range for the swap rate within which both companies A and B would benefit from the swa...
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Step: 2
Step: 3
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
