Desires floating-rate loan-firm desires fixed-rate loan

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Firm A desires a floating-rate loan; firm B desires a fixed-rate loan. Based on the following information, design a swap that will appear equally attractive to A and B. Fixed rate Floating Rate A 8% LIBOR + 0.2% B 9.4% LIBOR + 0.6% 7. A mortgage lender currently holds a loan with a principal of $10 million. The loan generates quarterly interest incomes at LIBOR+3%. The lender is concerned that interest rates may fall. It would like to protect itself by using an interest rate swap. A swap dealer quotes a fixed rate of 7.25% if it is to pay; and a fixed rate of 7.5% if it is to receive. Explain the swap arrangements sought by the mortgage lender to achieve its objective – and show the final outcome.

Reference no: EM131060906

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