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IV. Companies AB10 and XY10 are each planning on investing $30M for 2 years. Company AB10 can invest at the floating rate LIBOR +1.5% and
IV. Companies AB10 and XY10 are each planning on investing $30M for 2 years. Company AB10 can invest at the floating rate LIBOR +1.5% and at a fixed rate of 7%, and Company XY10 can invest at the floating rate LIBOR +3.5% and a fixed rate of x%. Company AB10 wishes for a fixed-rate investment, and Company XY10 wishes for a floating-rate investment. It is known that Company XY10 has the absolute advantage in both rates. The two companies enter into an interest rate swap, and gains for the firm with the absolute advantage in the rates is a third of the gains to the other firm. If as a result of the swap, XY10 invests at LIBOR+3.75% and AB10 invests at 7.75%, what is the value of x% ? (2 marks) Select one: a. 9.5% b. 10% c. 9% d. 10.5%
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