QUESTION 3 Companies X and Y have been offered the following borrowing rates per annum on a $5 million 10-year loan. Company X seeks a floating rate loan and company Y seeks a fixed-rate loan Fixed Rate Variable Rate Company X Company Y B-> C- If a bank will earn 0.1% per anum for acting as the intermediary, design the swap so that it will be equally attractive to X and Y. i.e. the QSD after paying the intermediary will be equally shared by firms X and Y. By designing the SWAP you should come up with the rates that will be paid or received by determining A, B, C, D, E and F in the diagram below. If a variable rate payment is made for payments B, C, D and E, make sure that it is only a Libor Rate not Libor +/- some number. D-> E-> 3.9% A F-> 4.5% Libor Firm X Libor +0.1% 72 Financial Intermediary ANSWER ENTRY. (Rules for answers... enter whole number rates such as 5% as 5.0 by keeping 1 decimal place. If a rate becomes 5.35% etc then keep 2 decomal places, enter as 5.35 only, For rates such as Libor+0.1% enter as Libor+0.1, NOT Libor+ 0.1 (which has a space before and after the + sign) A-> D E Firm Y F