Swap. a) Company A wants to borrow at fixed rate. Company B wants to borrow at floating rate. Given their cost of borrowing below, design a swap that benefit both of them. Assume that a financial institution backs the swap for a fee of 0.03%. Draw the cash flow chart for the swap deal. What are the effective rates that A and B end up paying?

	Fixed rate	Floating rate
A	7%	Libor + 0.2%
B	8.8%	Libor + 1.2%

b) A $100 million interest rate swap has a remaining life of 10 months. Under the terms of the swap, 6-month LIBOR is exchanged for 7% per annum (compounded semiannually). The average of the bid-offer rate being exchanged for 6-month LIBOR in swaps of all maturities is currently 5% per annum with continuous compounding. The 6-month LIBOR rate was 4.6% per annum 2 months ago. What is the current value of the swap to the party paying floating?