How much could alpha save from the swap

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Alpha and Beta Companies can borrow for a five-year term at the following rates:

                                                                   Alpha                          Beta

Moody's credit rating:                           Aa                           Baa

Fixed-rate borrowing cost:                     9.9%                      12.4%

Floating-rate borrowing cost:                    LIBOR LIBOR + 1.2%

Problem 1: If there is no swap bank involved, and Alpha wants to borrow through floating debts and desires 70% of the total benefit from the swap. How much could Alpha save from the swap? In other words, the all-in-cost for Alpha is LIBOR - B% through the swap, and B is worth 70% of the swap's total benefit (For example, if the total benefit of the swap is 2%, then B = 0.7 x 2%=1.4% , you enter your answer as "1.4").

Reference no: EM132933192

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