Company A desires a fixed-rate loan but currently has a better deal from the variable-rate market at a rate of SOFR+.03. If Company A borrows from the fixed-rate market, the cost would be .17. In contrast, Company B, which prefers a variable-rate loan, has a better deal from the fixed- rate market at.12. If Company B borrows from the variable-rate market, the cost would be SOFR+.02. Knowing both companies' needs, Bank C designed a swap deal. The deal is outlined in the following: Company A obtains a variable-rate loan at SOFR+.03. 2) Company B obtains a fixed-rate loan at .12. 3) Company A pays Bank C a fixed rate of .15 and receives a variable rate of SOFR+.02 from the bank. 1) 4) Company B pays Bank C a variable rate of SOFR+.04 and receives a fixed rate of .16 from the bank. How much is the cost saving to Company A?
Company A desires a fixed-rate loan but currently has a better deal from the variable-rate market at a rate of SOFR+.03. If Company A borrows from the fixed-rate market, the cost would be .17. In contrast, Company B, which prefers a variable-rate loan, has a better deal from the fixed- rate market at.12. If Company B borrows from the variable-rate market, the cost would be SOFR+.02. Knowing both companies' needs, Bank C designed a swap deal. The deal is outlined in the following: Company A obtains a variable-rate loan at SOFR+.03. 2) Company B obtains a fixed-rate loan at .12. 3) Company A pays Bank C a fixed rate of .15 and receives a variable rate of SOFR+.02 from the bank. 1) 4) Company B pays Bank C a variable rate of SOFR+.04 and receives a fixed rate of .16 from the bank. How much is the cost saving to Company A?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Company A desires a fixed-rate loan but currently has a better deal from
the variable-rate market at a rate of SOFR+.03. If Company A borrows
from the fixed-rate market, the cost would be .17. In contrast, Company
B, which prefers a variable-rate loan, has a better deal from the fixed-
rate market at .12. If Company B borrows from the variable-rate market,
the cost would be SOFR+.02. Knowing both companies' needs, Bank C
designed a swap deal. The deal is outlined in the following:
Company A obtains a variable-rate loan at SOFR+.03.
2)
Company B obtains a fixed-rate loan at .12.
3) Company A pays Bank C a fixed rate of .15 and receives a variable
rate of SOFR+.02 from the bank.
1)
4) Company B pays Bank C a variable rate of SOFR+.04 and receives a
fixed rate of .16 from the bank.
How much is the cost saving to Company A?
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