QUESTIONS: 1. Consider the following borrowing rates for companies A and B: Fixed Floating 8.75% LIBOR B 10% LIBOR+1% Company A is borrowing at the fixed rate while Company B is borrowing at the floating rate. But Company A would like to finance an interest rate sensitive asset while B would like to finance an interest rate insensitive asset. Design an interest rate swap agreement that would net 0.05% for the swap bank and would net 20% md 60% of the swap spread for company A and B respectively a) Show explicitly, which party pays what rate to whom, by skeching the figure and state the final effective rates for companies A and B. b) Calculate the annual payoff for all of the parties if the notional amount is $20,000,000. QUESTIONS: 1. Consider the following borrowing rates for companies A and B: Fixed Floating 8.75% LIBOR B 10% LIBOR+1% Company A is borrowing at the fixed rate while Company B is borrowing at the floating rate. But Company A would like to finance an interest rate sensitive asset while B would like to finance an interest rate insensitive asset. Design an interest rate swap agreement that would net 0.05% for the swap bank and would net 20% md 60% of the swap spread for company A and B respectively a) Show explicitly, which party pays what rate to whom, by skeching the figure and state the final effective rates for companies A and B. b) Calculate the annual payoff for all of the parties if the notional amount is $20,000,000