A Ltd, a low rated firm desires a fixed rate, long term loan. It currently has access to floating interest rate funds at a margin of 1.5% over the Prime Rate. Its direct borrowing cost is 13% in the fixed rate bond market. B Ltd which prefers a floating rate loan has access to fixed rate funds in cedi-bond market at 11% and floating rate funds at Prime Rate + ½%. You are required: (i) To explain how A Ltd and B Ltd can use swap to their advantage. (ii) Calculate how much Asaba Ltd would pay for its fixed rate funds

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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answer i and ii. show workings and formulas

A Ltd, a low rated firm desires a fixed rate, long term loan. It currently has
access to floating interest rate funds at a margin of 1.5% over the Prime Rate.
Its direct borrowing cost is 13% in the fixed rate bond market. B Ltd which
prefers a floating rate loan has access to fixed rate funds in cedi-bond market
at 11% and floating rate funds at Prime Rate + ½%.
You are required:
(i) To explain how A Ltd and B Ltd can use swap to their advantage.

(ii) Calculate how much Asaba Ltd would pay for its fixed rate funds

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