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(Interest rate swap, 2 of 4) Company A wants to finance a $100,000,000 project at a fixed rate for 5 years. Company B wants to
(Interest rate swap, 2 of 4) Company A wants to finance a $100,000,000 project at a fixed rate for 5 years. Company B wants to finance a $100,000,000 project at a floating rate for 5 years. Their external borrowing opportunities are given below. Assume a swap bank is quoting five-year dollar interest rate swaps at 8.8- 9.0 percent against LIBOR flat. What is the value of this swap to Company A? Credit Rating Fixed-Rate Borrowing Cost Floating Rate Borr Company A A 10.3% LIBOR+1% Company B AA 8.9% LIBOR+0.5% Company A will save 10 basis points per year on $100,000,000 = $10,000 per year. O Company A will lose money on the deal. Company A will save 3 basis points per year on $100,000,000 = $30,000 per year. O Company A will save 30 basis points per year on $100,000,000 = $300,000 per year. Company A will only break even on the deal
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