Solution-Draw the cash flow chart, Two companies have

Draw the cash flow chart

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Reference no: EM132675955

Two companies have investments which pay the following rates of interest:

Firm A= Fixed: 6%, Float: Libor

Firm B= Fixed: 8%, Float: 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, then

1) What rates could A and B receive on their preferred interest rate?

2) Please draw the cash flow chart.

Reference no: EM132675955

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Draw the cash flow chart

Reference no: EM132675955

Reference no: EM132675955

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