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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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