Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need help with this question Company A desires a variable-rate loan but currently has a better deal from the fixed-rate market at a rate

I need help with this question

Company A desires a variable-rate loan but currently has a better deal from the fixed-rate market at a rate of 13%. If Company A borrows from the variable-rate market, the cost would be LIBOR+2%. In contrast, Company B, which prefers a fixed-rate loan, has a better deal from the variable-rate market at LIBOR+3%. If Company B borrows from the fixed-rate market, the cost would be 16%. Knowing both companies' needs, Bank C designed a swap deal. The deal is outlined in the following:

1)Company A obtains a fixed-rate loan at 13%.

2)Company B obtains a variable-rate loan at LIBOR+3%

3)Company A pays Bank C a variable rate of LIBOR+1% and receives a fixed rate of 13.3% from the bank.

4)Company B pays Bank C a fixed rate of 14.5% and receives a variable rate of LIBOR+2.0% from the bank.

How much is the gain to Bank C?

Is it

a.0.4%

b.0.8%

c.0.6%

d.1%

e.0.2%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Mathematics

Authors: Charles MillerStanley SalzmanStanley SalzmanGary Clendenen

11th Edition

0321500121, 9780321500120

More Books

Students also viewed these Finance questions

Question

1. Let a, b R, a Answered: 1 week ago

Answered: 1 week ago