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Consider two companies AAACorp and BBBCorp that wish to borrow $10 million for five years. These companies have credit ranking AAA and BBB and are
Consider two companies AAACorp and BBBCorp that wish to borrow $10 million for five years. These companies have credit ranking AAA and BBB and are offered the following rates: AAACorp BBBCorp Fixed, % 4.0 5.2 Floating % Six month LIBOR-0.1 Six month LIBOR +0.6 AAACorp borrows at fixed rates while BBBCorp borrows at floating rates and then they enter the swap agreement For example, AAACorp agrees to pay BBBCorp floating interest at six-month LIBOR on $10 million, while BBBCorp agrees to pay AAACorp interest at fixed rate of 4.4% on $10 million. What are the cash flows for each companies
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