Design a swap that will net a bank

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Reference no: EM13263684

Company A needs $30 million at a floating-rate to fund a 5-year project while Company B desires $30 million at a fixed rate to complete its 5-year construction plans. Company A and Company B have been offered the following rates per annum on a $30 million 5-year loan:

	Fixed rate	Floating rate
Company A:	12.0%	LIBOR + 0.1%
Company B:	13.4%	LIBOR + 0.6%

What might explain the differences in the rates offered the two companies?
What is the QSD in this case?
Design a swap that will net a bank, acting as intermediary, 0.1% per annum and that will appear equally attractive to both companies. Show your calculations as you illustrate the transaction.

Reference no: EM13263684

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