34. [12 pts) Companies AAA and BBB are offered the following rates per annum on...
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34. [12 pts) Companies AAA and BBB are offered the following rates per annum on a $5 million 10-year loan. AAA requires a fixed-rate loan while BBB requires a floating-rate loan. Bank of America (BOA) is planning to arrange a fixed-for-LIBOR (=R%& LIBOR exchange) swap with a 20-basis- point spread, which will appear equally attractive to AAA and BBB. 1 AAA BBB Fixed Rate 5.5% 6.5% I Floating Rate LIBOR I LIBOR | (A) Total gain of the swap is: (B) The net gain of the swap to each company without the F.I. is: (C) The net gain of the swap to each company with the F.I. is: (D) The swap rate that is equally attractive to each company without the F.I. is
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