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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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?
Expert Solution
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