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j. What is a swap? Suppose two firms have different credit ratings. Firm Hi can borrow fixed at 11% and floating at LIBOR + 1%.
j. What is a swap? Suppose two firms have different credit ratings. Firm Hi can borrow fixed at 11% and floating at LIBOR + 1%. Firm Lo can borrow fixed at 11.4% and floating at LIBOR + 1.5%. Describe a floating versus fixed interest rate swap between firms Hi and Lo in which Lo also makes a side payment of 45 basis points to Firm L.
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