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Define design a swap that will be equally attractive

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Reference no: EM131730002

Companies A and B have been offered the following rates per annum on a 100 million five-year loan:

 

Fixed rate

Floating rate

Company A

8.0%

TB + 1.0%

Company B

10.6%

TB + 1.6%

Company A requires floating rate borrowing whereas company B requires fixed rate borrowing.

Required

Design a swap that will be equally attractive to the two companies.

Assuming the two companies contract a financial intermediary who will charge 0.12% will per annum design a swap that will be equally attractive to the two companies.

Assuming the financial intermediary adjusted his charge to 18 basis points would the swap still be tenable? If yes design a swap that will be equally attractive to the two companies.

Reference no: EM131730002

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