Consider a plain vanilla interest rate swap. Firm A can borrow at 8 percent fixed or can borrow floating at LIBOR. Firm Bis somewhat less creditworthy and can borrow at 10 percent fixed or can borrow floating at LIBOR + 1 percent. Firm A wants to borrow floating and Firm B prefers to borrow fixed. Both corporations wish to borrow $10 million for 5 years. Which of the following swaps is mutually beneficial to each party and meets their financing needs? Multiple Choice : A borrows $10 million externally for 5 years at LIBOR, agrees to pay e percent to B for LIDOR Funed for Syears on a notational principal of $5 million, borrows $10 million externally at t0 percent. Since the so there is no mutually beneficial swap A borrows $10 milion externally at 8 percent fixed for 5 years agrees to swap LIBOR to for a percent wed for years on a notational principal of 55 million borrows $10 milion externally at UIBOR + 1 percent Firm A borrows $10 milion externally for 5 years of LIBOR, agrees to swap LIDOR to tem for 8 percent feed for 5 years on a rotational principal of $5 million borrows $10 million externally at 10 percent
