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Question 1 - Interest rate Swap Consider firms A and B; each firm wants to borrow $10 million for 3 years Firm A wants to
Question 1 - Interest rate Swap Consider firms A and B; each firm wants to borrow $10 million for 3 years Firm A wants to finance an interest-rate-sensitive asset and therefore wants to borrow at a floating rate. A has relatively better credit than B and can borrow at LIBOR +.25%. Firm B wants to finance an interest-rate-insensitive asset and therefore wants to borrow at a fixed rate. B can borrow at 8%. The swap bank quotes 7.007.10 against dollar LIBOR for a 3-year swap. Do firms A and B benefit from swapping? How much each benefit
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