Design a swap that will net a bank acting as intermediary

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Companies A and B have been offered the following rates per annum on a 50 million five-year loan:

Fixed rate of company A 11.0%

Floating rate of company A TB + 1.1%

Fixed rate of company B 12.4%

Floating rate of company B TB + 1.6%

Company A requires a floating loan and company B requires a fixed rate loan.

Required;

Question i. Design a swap that will net a bank acting as intermediary 0.1% per annum and that will appear equally attractive to both companies.

Question ii. Assume that the financial intermediary adjusted his charge to 30 basis points. Would it be still tenable to pursue the swap? If so give the appropriate diagram for the swap showing how it will be designed.

Reference no: EM132602449

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