Firm A wants to borrow $8,000,000 floating for 3 years; Firm B wants to borrow $8,000,000 fixed for 3 years. Their external borrowing opportunities are shown below:

1. Compute the value of this swap to Swap Bank? (20 points)

2. Compute the value of this swap to Firm A? (20 points)

3. Compute the value of this swap to Firm B? (20 points)

I. Firm A wants to borrow $8,000,000 floating for 3 years; Firm B wants to borrow $8,000,000 fixed for 3 years. Their external borrowing opportunities are shown below: Swap Bank proposes the following interest only swap: Firm A will pay the swap bank annual payments on $8,000,000 with the coupon rate of LIBOR; in exchange, Swap Bank will pay to Firm A interest payments on $8,000,000 at a fixed rate of 5.10%. Firm B will pay the swap bank interest payments on $8,000,000 at a fixed rate of 5.20% and the swap bank will pay Firm B annual payments on $8,000,000 with the coupon rate of LIBOR. Notice that the swap bank let Firm A borrow and keep $8,000,000 from its bank (Bank X ) at the 5% fixed rate, and that the swap bank let Firm B borrow and keep $8,000,000 from its bank (Bank Y ) at the floating rate of LIBOR+0.20\%. 1. Compute the value of this swap to Swap Bank? (20 points) 2. Compute the value of this swap to Firm A? (20 points) 3. Compute the value of this swap to Firm B? (20 points) I. Firm A wants to borrow $8,000,000 floating for 3 years, Firm B wants to borrow $8,000,000 fixed for 3 years. Their external borrowing opportunities are shown below: Swap Bank proposes the following interest only swap: Firm A will pay the swap bank annual payments on $8,000,000 with the coupon rate of LIBOR; in exchange, Swap Bank will pay to Firm A interest payments on $8,000,000 at a fixed rate of 5.10\%. Firm B will pay the swap bank interest payments on $8,000,000 at a fixed rate of 5.20% and the swap bank will pay Firm B annual payments on $8,000,000 with the coupon rate of LIBOR. Notice that the swap bank let Firm A borrow and keep $8,000,000 from its bank (Bank X ) at the 5% fixed rate, and that the swap bark let Firm B borrow and keep $8,000,000 from its bank (Bank X) at the floating rate of LIBOR+0.20\%. 1. Compute the value of this swap to Swap Bank? (20 points) 2. Compute the value of this swap to Firm A? (20 points) 3. Compute the value of this swap to Firm B ? (20 points)