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Homework answers / question archive / Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:   Fixed Rate Floating Company X 8% LIBOR+0

Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:   Fixed Rate Floating Company X 8% LIBOR+0

Accounting

Companies X and Y have been offered the following rates per annum on a $5 million 10-year investment:

 

Fixed Rate

Floating

Company X

8%

LIBOR+0.3%

Company Y

8.8%

LIBOR

Company X requires a floating-rate investment; company Y requires a fixed-rate investment. Design a swap that will net a bank, acting as intermediary, 0.1% per annum and will appear equally attractive to X and Y. (Make all the floating interests equal to the Libor rate).

Option 1

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