Suppose company a and b have access to the borrowing market, Ask an Expert

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Suppose company A and B have access to the borrowing market with following rate (table). It is known that A wants to borrow at a fixed rate while B wants to borrow at a floating rate.

Counterparty Fixed Rate Floating Rate

A 8.0% 6-month LIBOR + 0.5%

B 7.0% 6-month LIBOR

Now please answer following questions:

(1) What's the total cost savings can be realized?

(2) Suppose they (A and B) split the cost savings evenly. How much would A pay for its fixed rate funds? How much would B pay for its floating rate funds?

(3) Suppose the intermediary bank gains profit of 0.1%, redo the above problem (2)?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92753833

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