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(Following Rates are Quoted)     Company A Company B Credit Rating A B Fixed Rate 6% 8% Floating Rate LIBOR+1% LIBOR+1.5%   Which company has a relative advantage and in which market? Which company has an absolute advantage and in which market Company A wants to borrow floating. Company B wants to borrow fix. Build a proper SWAP that benefit the two companies.

(Following Rates are Quoted)     Company A Company B Credit Rating A B Fixed Rate 6% 8% Floating Rate LIBOR+1% LIBOR+1.5%   Which company has a relative advantage and in which market? Which company has an absolute advantage and in which market Company A wants to borrow floating. Company B wants to borrow fix. Build a proper SWAP that benefit the two companies.

Essentials Of Investments
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
Section: Chapter Questions
Problem 1PS
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(Following Rates are Quoted)

 

 

Company A

Company B

Credit Rating

A

B

Fixed Rate

6%

8%

Floating Rate

LIBOR+1%

LIBOR+1.5%

 

  1. Which company has a relative advantage and in which market?
  2. Which company has an absolute advantage and in which market
  3. Company A wants to borrow floating. Company B wants to borrow fix. Build a proper SWAP that benefit the two companies.  
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