[Do at home, this may be reviewed in the week the 12 tutorial] [interest rate/coupon swap] Now suppose the data from the previous questions change to Borrower Fixed rate Floating rate AAA 9.00% p.a. LIBOR BBB 9.70% p.a. LIBOR +0.50% p.a.
1. Under the assumption of no intermediation/no intermediation fees and an equal split of savings (if any), determine if a swap can produce cost savings for both parties and if that is true, redesign the swap with these new data. 2. Under the assumption that the swap is intermediated by an investment bank that requests a 0.10% fee to each of the two parties, determine if a swap can produce cost savings and, if that is true, redesign the swap with these new data.
