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Question 91 of Kaplan Exam Practice Kit.
Company A would like to take out a variable rate loan for a new project. Company B also has a new project but would like to take out a fixed loan in order to have certainty over interest payment.
Company A has been quoted a fixed rate of 7% and a variable rate of LIBOR + 4%.
Company B has been quoted a fixed rate of 6% and a variable rate of LIBOR + 2% as it has a higher credit rating than A.If they enter into a swap agreement, what effective rate will each end up paying?
a. Co A 7% and Co B LIBOR + 2%
b. Co A LIBOR + 4% and Co B 6%
c. Co A LIBOR + 2% and Co B 7%
d. Co A LIBOR + 3.75% and Co B 5.5%I know these are easy questions but i get all puzzled when i try to figure them out. Would be great help if you could send me the working and i am so sorry for the trouble i’m putting you through! Thanks a lot!
Thank you! yes i also noticed the error but i thought i was wrong.Thanks for confirming!
If you’re good in swaps, can you help me please? i understand the basics but i get stuck when it gets to a sum (even a simple one as this).Really appreciate if you could assist me! Thanks