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What is the value of this swap to the swap bank

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Reference no: EM132491316

Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years. Their external borrowing opportunities are shown here:

Fixed rate Floating rate

Company X 10% LIBOR

Company Y 12% LIBOR + 1.5%

A swap bank proposes the following interest only swap:

X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 10.05 percent. Y will pay the swap bank interest payments on $10,000,000 at a fixed rate of 10.30 percent and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR - 0.15 percent.

Does the swap bank make any money in this set of swap deals? What is the value of this swap to the swap bank annually in basis points? In dollars?

Reference no: EM132491316

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