Kath and Kim each wish to borrow $5 million for five years, but Kath prefers to borrow at floating rate while Kim prefers fixed. However, Kath has a higher credit rating and has an absolute advantage in borrowing at both floating and fixed rate. They have obtained the following quotations for borrowing: Fixed Rate Floating Rate Kath 3% p.a. Libor - 0.15% p.a. Kim 4% p.a. Libor + 0.35% p.a. A swap dealer quotes a mid-rate of 3.45% p.a. against Libor and pays 5 basis points less than the mid-rate and receives 5 basis points more. Swap Dealer A B Kath Kim D E F i) Design an on-market plain 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) By engaging in this swap, how much will Kim be able to reduce her cost of borrowing below the market alternative for her preferred borrowing type? [4+6=10 marks]