Kath and Kim each wish to borrow $10 million for five years, but Kath prefers to borrow at floating rate while Kim prefers fixed.However,Kath has a higher credit ratingand has an absolute advantage in borrowing at both floating and fixed rate.They have obtained the following quotations for borrowing:

Kath

Fixed Rate : 4% p.a.

Floating Rate : Libor - 0.5% p.a.

Kim

Fixed Rate : 6% p.a.

Floating Rate : Libor + 0.75% p.a.

A swap dealer quotes a mid-rate of 4.95% p.a. against Libor, and pays 10 basis points less than the mid-rate and receives 10 basis points more.

i)Design anon-marketplain vanilla swap which will reduce both Kath and Kim's borrowing costs and provide them with their preferred form of borrowing.Indicate what values are required for the letters A to F on the above diagram.

ii)What will be Kim's effective borrowing cost as a result of this swap?