Consider the borrowing costs faced by the following three companies: Fixed Floating A 5.0%...
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Finance
Consider the borrowing costs faced by the following three companies:
Fixed Floating
A 5.0% LIBOR+0.6%
B 6.0% LIBOR+1.3%
C 7.0% LIBOR+2.5%
Assume if entering the swap transaction, they split the possible savings equally.
A) Company A and B want to engage in the swap transaction. What is the possible combined savings for both companies?
B) Suppose company C wants to borrow fixed rate funds. Is it possible for C to reduce its cost of borrowing below 7%, and if so what is the lowest possible cost of could achieve?
C) Suppose company C wants to borrow floating rate funds. Is it possible for C to reduce its cost of borrowing below LIBOR + 2.5%, and if so what is the lowest possible cost it could achieve?
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