Assume prefers fixed rate and prefers floating rate

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Reference no: EM131881049

Two companies have investments which pay the following rates of interest:

Firm A Fixed: 6% & Float: Libor

Firm B Fixed: 8% & Float: Libor + 0.5%

Assume A prefers a fixed rate and B prefers a floating rate. If an intermediary charges both parties equally a 0.1% fee and any benefits are spread equally between Firm A and Firm B. If an intermediary charges both parties equally a 0.1% fee and any benefits are spread equally between Firm A and Firm B, what rates could A and B receive on their preferred interest rate? Show all working.

Reference no: EM131881049

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