Company A can borrow money at a fixed rate of 9 percent or a variablerate set at prime plus 1 percent. Company B can borrow money at avariable rate of prime plus 2 percent or a fixed rate of 8.25 percent.Company A prefers a fixed rate and company B prefers a variable rate.A swap dealer can bring them together for a commission of 1% on theswap deal and the companies allocate the remaining QSD as 0.25% and0.5% to companies A and B respectively. i) Is there any gain for the concerned parties through the swapdeal?ii) If so, show a swapping arrangement, ensuring that both CompanyA and B are better off and the swap and the swap dealer gets the1% cut.

Company A can borrow money at a fixed rate of 9 percent or a variablerate set at prime plus 1 percent. Company B can borrow money at avariable rate of prime plus 2 percent or a fixed rate of 8.25 percent.Company A prefers a fixed rate and company B prefers a variable rate.A swap dealer can bring them together for a commission of 1% on theswap deal and the companies allocate the remaining QSD as 0.25% and0.5% to companies A and B respectively. i) Is there any gain for the concerned parties through the swapdeal?ii) If so, show a swapping arrangement, ensuring that both CompanyA and B are better off and the swap and the swap dealer gets the1% cut.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter24: Enterprise Risk Management

Section: Chapter Questions

Problem 4P

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Please do not copy and paste what has already been posted and all working. Company A can borrow money at a fixed rate of 9 percent or a variable rate set at prime plus 1 percent. Company B can borrow money at a variable rate of prime plus 2 percent or a fixed rate of 8.25 percent. Company A prefers a fixed rate and company B prefers a variable rate. A swap dealer can bring them together for a commission of 1% on the swap deal. a) Compute the potential gain for the concerned parties through the swap deal?
Please do not copy and paste what has been already posted. Show full working. Company A can borrow money at a fixed rate of 9 percent or a variable rateset at prime plus 1 percent. Company B can borrow money at a variable rateof prime plus 2 percent or a fixed rate of 8.25 percent. Company A prefersa fixed rate and company B prefers a variable rate. A swap dealer can bringthem together for a commission of 1% on the swap deal.b) Show a swapping arrangement, ensuring that both Company A and B arebetter off and the swap dealer gets the 1% cut.
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design a swap. see attached