4. Danas bank has two clients who need to raise capital. ILX would like fixed rate debt and TST would like floating rate debt. Dana has estimated the following interest rates facing the two firms in the debt markets.

ILX TST

Floating rate LIBOR+0.5% LIBOR-1.5%

Fixed rate 10% 7%

Help Dana construct a swap wherein both firms share equally in the benefits. (Assume transaction costs are zero. Danas bank has already collected its consulting fees.) State all of the steps leading up to the net interest costs for each party.