Financial Derivatives (FIN429) Thursday 10-May-2018 Section II QUESTION # 8 Suppose that AAA Corp and BBB Corp are two companies who want to borrow USD 100 million for 5 years. AAA Corp prefers to borrow at fixed rate of interest, while BBB Corp has a preference to borrow at floating rate of interest. Suppose that in debt market (banks) offer the followings to [Max. Marks 10-3+6+1] AAA Corp and BBB Corp: Companies Quotes AAA Corp | Prime- 1% 8% BBB Corp | Prime + 1.5% | 9.25% 1. Construct the interest rate swaps involving a swap dealer and debt market, where swap dealer would get 50 basis points. 2. Compute the total gains for each party involved in swap contracts? 3. What will be total gains from all parties in this swap deal