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Rollins Corp can obtain a fixed rate loan at 7.10% and a floating loan at LIBOR + 0.5%. Peterson Ltd. can obtain a fixed rate

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Rollins Corp can obtain a fixed rate loan at 7.10% and a floating loan at LIBOR + 0.5%. Peterson Ltd. can obtain a fixed rate loan at 9.5% and a floating rate loan at LIBOR + 2%. Rollins desires a 7.05%. floating rate loan while Peterson desires a fixed rate loan. Assume that the fixed swap rate is Required: (a) Use the diagram below to show how an interest rate swap benefiting both parties could be structured. (7 Marks) I C O (b) How much in annual interest (%) does each party save as a result of the swap

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