3. Suppose companies A and B have been offered the following rates per annum on...
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3. Suppose companies A and B have been offered the following rates per annum on a $100 million three-year loan: Fixed Rate Floating Rate Company A 4.0% LIBOR + 0.3% Company B 5.4% LIBOR + 0.8% a. Which company has a comparative advantage in the floating rate market? 7 pts b. What is the total gain to all parties? 8 pts c. Design a swap that will net a financial intermediary 0.1% per year that will appear equally attractive to both parties, and report the final borrowing costs for each company. 15 pts 3. Suppose companies A and B have been offered the following rates per annum on a $100 million three-year loan: Fixed Rate Floating Rate Company A 4.0% LIBOR + 0.3% Company B 5.4% LIBOR + 0.8% a. Which company has a comparative advantage in the floating rate market? 7 pts b. What is the total gain to all parties? 8 pts c. Design a swap that will net a financial intermediary 0.1% per year that will appear equally attractive to both parties, and report the final borrowing costs for each company. 15 pts
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