Which intervals so that both companies benefit from the swap

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Problem 1: AAA Corp. can borrow at a fixed rate of 5.0% and at a floating rate of LIBOR plus 40 basis points. BBB Cop. can borrow at a fixed rate of 5.8% and at a floating rate of LIBOR plus 90 basis points. AAA Corp. wants a floating rate loan and BBB Corp. wants a fixed rate loan. The two companies agree to enter into a swap whereby AAA pays LIBOR and BBB pays fixed. The swap rates should lie in which of the following intervals so that both companies benefit from the swap?

A. Between 4.6% and 4.9%
B. Between 5.5% and 5.7%
C. Between 4.4% and 4.7%
D. Between 5.5% and 5.9%
E. None of the above

 

Reference no: EM132815506

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