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LXN Corporation and Musgrave Minerals Limited (MGV) both wish to invest $20 million in 5 years and have been offered the rates shown in Exhibit
LXN Corporation and Musgrave Minerals Limited (MGV) both wish to invest $20 million in 5 years and have been offered the rates shown in Exhibit 2. LXN wishes to invest at a floating rate of interest, while MGV requires a fixed-rate investment.
Fixed Rate: LXN 3%, LIBOR-0.6%
Floating rate : MGV 3.8% , LIBOR+0.8%
design a vanilla swap that will appear equally attractive to LXN and MGV. Assume that a financial institution, acting as an intermediary, is planning to charge a 0.2% premium.
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