Company X and Company Y have been offered the following rates for a 10 million dollar investment. Fixed Rate Floating Rate Company X 3.5% 3-month LIBOR plus 10bp Company Y 4.5% 3-month LIBOR plus 30bp Suppose that Company X invests floating and company Y invests fixed. If they enter into a swap with each other where the apparent benefits are shared equally, what is the interest rate that company Y will get after entering the swap? 3-month LIBOR-10bp 3.9% 3-month LIBOR+70bp 4.9%

Company X and Company Y have been offered the following rates for a 10 million dollar investment. Fixed Rate Floating Rate Company X 3.5% 3-month LIBOR plus 10bp Company Y 4.5% 3-month LIBOR plus 30bp Suppose that Company X invests floating and company Y invests fixed. If they enter into a swap with each other where the apparent benefits are shared equally, what is the interest rate that company Y will get after entering the swap? 3-month LIBOR-10bp 3.9% 3-month LIBOR+70bp 4.9%

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 32QA

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Question

Company X and Company Y have been offered the following rates for a 10 million dollar
investment.
Fixed Rate
Floating Rate
Company X
3.5%
3-month LIBOR plus 10bp
Company Y
4.5%
3-month LIBOR plus 30bp
Suppose that Company X invests floating and company Y invests fixed. If they enter into a swap
with each other where the apparent benefits are shared equally, what is the interest rate that
company Y will get after entering the swap?
3-month LIBOR-10bp
3.9%
3-month LIBOR+70bp
4.9%

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