Suppose you have the following rates for Company A and Company B.

a. Which rate is favorable for each company? b. Design a swap agreement in which Company A is a fixed rate payer and Company B is a floating rate payer. First, design a swap agreement without a financial intermediary and the two parties share the surplus equally. Next, design a swap agreement with a financial intermediary and all the three parties share the surplus equally. c. Draw the diagram showing the transaction between these parties.

Floating rate Fixed rate LIBOR + 1% 12% Company A LIBOR+5% 13% Company B