Develop an interest rate swap

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Reference no: EM133115674

Use the following information to develop (price) an interest rate swap in which both X and Y have an equal cost savings in their borrowing costs:

 

X

Y

Moody's credit rating

Aa

Baa

Fixed rate borrowing cost

10.5%

12%

Floating rate borrowing cost

LIBOR

LIBOR + 1%

Wants 

Float rate financing

Fixed rate financing

Assume

No swap bank is involved

Solution

To make things easier, please solve the question by filling in the following table

 

X

Y

May issue

 

 

May pay

 

 

May receive

 

 

Net payments

 

 

Reference no: EM133115674

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