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use Exhibit 2 to design a vanilla swap that will appear equally attractive to LXN and MGV. Assume that a financial institution, acting as an
use Exhibit 2 to design a vanilla swap that will appear equally attractive to LXN and MGV. Assume that a financial institution, acting as an intermediary, is planning to charge a 0.2% premium.
LXN Corporation and Musgrave Minerals Limited (MGV) both wish to invest $20 million in 5 years and have been offered the rates shown in Exhibit 2. LXN wishes to invest at a floating rate of interest, while MGV requires a fixed-rate investment. Fixed Rate Floating Rate LXN 3% LIBOR-0.6% MGV 3.8% LIBOR+0.8% Exhibit 2: Interest ratesStep by Step Solution
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