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Show how the parties could put together a swap deal

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Question: A savings and loan's credit rating has just slipped, and half of its assets are long-term mortgages. It offers to swap interest payments with a money center bank in a $100 million deal. The bank can borrow short term at LIBOR (8.05 percent) and long term at 8.95 percent. The S&L must pay LIBOR plus 1.5 percent on short-term debt and 10.75 percent on long-term debt. Show how these parties could put together a swap deal that benefits both of them about equally.

Reference no: EM131717653

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