The dealer's mid rate for a four year plain vanilla swap is 7.55% against AUD LIBOR.The swap dealer pays 10 basis points less than the mid rate and receives 10 basis points more.Construct a five year plain vanilla interest rate swap which will remove the interest rate risk of Ernie Ltd and Bert Ltd who are in the following position:

Income Liability

Ernie Ltd: AUD 10 million AUD 10 million

@AUD libor+2.5% @ 7.0% p.a.

Bert Ltd: AUD 10 million AUD 10 million

@ 9% p.a. @ AUD libor-0.5%

Diagram all interest flows, determine the lowest effective borrowing cost for each, and their locked-in spreads.