Determine the spread differential

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Swaps Consider two firms, Yakwanza plc and Yamwisho plc. Yakwanza plc has a better credit rating and can borrow cheaper than Yamwisho plc in both fixed-and floating-rate markets. Specifically, Yakwanza plc pays 8% fixed and LIBOR plus 1% floating. Yamwisho plc pays 12% fixed and LIBOR plus 2% floating. If Yakwanza plc prefers to borrow floating and Yamwisho plc prefers to borrow fixed, determine the spread differential that they will split if they do a swap with each other.

Reference no: EM133060926

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