Question
Question (1) Firm A prefers to borrow float-rate while firm B prefers to borrow fixed-rate. A is offered 4.5% fixed rate and LIBOR float rate,
Question (1)
Firm A prefers to borrow float-rate while firm B prefers to borrow fixed-rate. A is offered 4.5% fixed rate and LIBOR float rate, while B is offered 6% fixed rate and LIBOR+0.5% float rate. If both firms approach you as an MSF elite graduate for a consultation to reduce their borrowing costs, suggest (voluntarily) an interest rate swap structure where A benefits 75% of the cost reduction and B benefits 25% of the cost reduction.
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| A
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| Pay to the other |
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| Receive |
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Foundations Of Financial Management
Authors: Stanley B. Block, Geoffrey A. Hirt, Bartley R. Danielsen
13th Edition
0073382388, 978-0073382388
