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Consider the following borrowing costs faced by the following 3 companies: Fixed rate Floating rate Company A 7.0% LIBOR + 0.1% Company B 6.5% LIBOR
Consider the following borrowing costs faced by the following 3 companies:
| Fixed rate | Floating rate |
Company A | 7.0% | LIBOR + 0.1% |
Company B | 6.5% | LIBOR 0.1% |
Company C | 7.3% | LIBOR + 0.2% |
If company A wants to borrow floating-rate funds, what is the lowest possible cost of funds that this company could achieve? Assume that if any two companies enter into the swap transaction, they split the possible savings equally.
Hint: consider all possible ways that company A could borrow floating-rate funds.
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