1. Firm B, with a better credit rating, has lower borrowing costs in both types of borrowing. Firm A and Firm B face the following rate structure: (2pts)

Preferred Fixed Floating

Firm A Fixed 8.0% 6-month LIBOR+0.6%

Firm B Floating 6.8% 6-month LIBOR

1. In what type of borrowing does Firm A have a comparative advantage? Why?
2. In what type of borrowing does Firm B have a comparative advantage? Why?
3. What is the maximum cost savings through a swap?