Answered
Company A can issue floating-rate debt at LIBOR + 1%,and it can issue fixed rate debt at 9%.Company B can issue floating-rate debt at LIBOR + 1.5%,and it can issue fixed-rate debt at 9.4%.Suppose A issues floating-rate debt and B issues fixed-rate debt,after which they engage in the following swap: A will make a fixed 7.95% payment to B,and B will make a floating-rate payment equal to LIBOR to A.What are the resulting net payments of A and B?
A) A pays a fixed rate of 9%; B pays LIBOR + 1.5%.
B) A pays a fixed rate of 8.95%; B pays LIBOR + 1.45%.
C) A pays LIBOR plus 1%; B pays a fixed rate of 9.4%.
D) A pays a fixed rate of 7.95%; B pays LIBOR.
On Jun 18, 2024