Determining the preferred interest rate

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Company A has fixed interest rate of 6% and float LIBOR whereas company B has fixedat 8% and float at LIBOR+0.5%. Assume A prefers a fixed rate and B prefers a floating rate. Show how these two firms can both benefit by entering into a swap agreement. 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? Please draw the cash flow chart.

Reference no: EM132389539

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