Part I.

Find the upcoming net payment in an interest rate swap in which the fixed rate is 6% and the floating rate for the upcoming settlement is 4.5%. The notional amount is $2 million and payments are based on the assumption of 180 days in the payment period and 360 days per year. (Hint: find what the value of the payment is and who will pay - the fixed rate payer or the floating rate payer?)

Part II.

Company AAA can borrow at 5.0% in fixed rate markets and LIBOR plus 100 basis points in floating rate markets. BBB is riskier and it can borrow at 6.8% in fixed markets, at which borrowing rate in the floating rate market would any comparative borrowing advantage be neutralized such that neither company has a comparative advantage in the fixed or floating rate market?

Part III.

Suppose Company AAA still can borrow at the rates described in Part II, and it wants to borrow at a floating rate. Company CCC, which represents a higher credit risk, can borrow at a fixed rate of 7.0% and a floating rate of LIBOR + 2.0%. Further, Company CCC wants to borrow at a fixed rate. An investment bank is willing to act as a swap intermediary but will require a net payment of 20 basis points (0.2%) per annum. If both companies will benefit equally from the designed swap, what is Company CCC's swap trade with the investment bank?